There has been much said about constraints on building supplies affecting the housing sector, but relatively little analysis or discussion of issues facing supplies and resources for our infrastructure projects. These require vast quantities of raw materials and are highly sensitive to the quality, location and cost of things like aggregates, steel and cement.
New Zealand has vast physical resources at its fingertips, but over time a lack of strategic planning along with various new regulations, consent conditions and unhappy neighbours have chipped away and eroded rights of operators to develop and recover these essential ingredients for our economy — leaving us worse off as a result.
NZIER forecasts indicate that non-residential construction cost inflation will increase to 10 per cent per annum in coming months, a truly staggering figure which equates to a doubling in cost every 7 years.
While current supply chain disruptions are likely to be transitory, they may persist if the ongoing Covid pandemic continues to affect manufacturing and port operations in Asia. For infrastructure, the recent Infrastructure Resources Study commissioned by the New Zealand Infrastructure Commission (Te Waihanga) suggests that rather than just blaming supply chain issues, we should be looking closer to home for a solution.
The study indicates that over the past decade raw materials costs have tracked below inflation, but the cost of transporting these materials to the places they're needed has risen considerably. It indicates that strategic planning has a key role to play in protecting high-quality resources near key markets and ensuring that regulations are sufficiently permissive to allow supply to meet demand.
The lack of flexibility in supply and the long lead times required to realise new capacity means both aggregates and timber are especially sensitive to sudden increases in demand like the boom we have experienced over the past 18 months.