Construction costs are rising. Photo / Getty Images
The Bay's building industry is grappling with a double blow as construction costs climb and supply chain issues plague the sector.
And the cost is likely to land on consumers.
New data shows construction costs have risen to the highest level in two years while local builders say they are playing the waiting game for even "odds and sods" products to arrive from overseas.
Intense pressures were also starting to emerge with rising labour costs and a shortage of builders.
CoreLogic's Cordell Housing Price Index (CHIP) report showed construction costs rose by 1.3 per cent in the first quarter of 2021.
It followed 0.6 per cent and 0.4 per cent increases in Q3 and Q4 2020 and is the highest rate of cost inflation since Q1 of 2019.
Construction costs rose the most in carpentry and joinery, (more than 20 per cent).
CoreLogic chief property economist Kelvin Davidson said the impact of rising construction costs was being felt across the sector.
"Capacity pressures are pretty intense for house builders. That's starting to show in labour costs and shortages of builders."
Davidson said the government was putting money into apprenticeship schemes but "we can't create builders overnight".
Costs were rising for materials partly due to shipping issues, including timber and "even little things like light switches and certain types of tiles".
The challenges coincided with increased demand for new builds and rising house prices in Tauranga (median $937,500) and Rotorua (median $630,00).
"It's a double-edged sword with the high demand and pressures on capacity, but it also gives confidence in developers to keep building which is what we need."
He expected the cost of building a new home would continue to rise.
"We are seeing the impact of tight capacity."
Tauranga City Council issued 95 residential building consents for 122 new homes valued at $51,040,856 in April.
In Rotorua, there were 102 residential consents at a work value of $12,603,477.
Classic Group director Matt Lagerberg said construction costs have steadily increased in the last 10 years, but there had been a "noticeable jump" in the last two-to-three months.
"We are receiving proposed price increases daily, ranging from 3 to 16 per cent across various products.
"We can only assume this is because of market demand."
Lagerberg said Covid-19 triggered an unexpected property surge and demand for housing had boosted significantly.
"We can't get product to New Zealand fast enough or find the number of available and skilled subcontractors we need to build fast enough. Logistically we are paying more for everything."
Lagerberg said price increases were exceeding inflation levels so inevitably the cost of housing will go up.
"That, coupled with the Bay's land shortage, will see housing become even more sought after."
The higher the costs the less affordable it was for the customer, he said.
New Zealand Certified Builders chairman Mike Craig said the Covid-19 related supply chain issues had hit everyone.
"Building businesses are needing to plan their jobs well ahead to guarantee product is available when they need it.
"For example, you would expect to pre-order with a three-week window to have product to site, now that could be 12 weeks."
The impact will bring up the cost for building businesses, he said.
"... if you are short of product and you have to pay wages to these men, or scaffolding is up for extra weeks it will cost businesses."
Craig said businesses needed to project manage to a "degree they may never have before" which also increased workload.
He said demand for containers and warehouses was pushing up shipping and storage costs, as well as rising wages in busy industries and sub-trades increasing their pricing.
"All the above needs to be handed to the end consumers."
Registered Master Builders vice-president Johnny Calley said there had been steady increases from most construction industry product suppliers since the end of lockdown 2020 and would likely continue for the rest of 2021.
The owner of Calley Homes said rising construction costs would mean higher property prices, which was adding fuel to the lack of land available and putting stress on some construction businesses and their clients.
"Businesses without cost fluctuation clauses in their contracts will have to soak up that increased cost, which can lead to cutting corners to avoid large cost overruns."
Consumers could be in for unexpected variations to their contracts causing issues with bank lenders, he said.
"Either way, no one wins."
Registered Master Builders Tauranga Branch president Todd Grey said there were short-term supply chain issues with bigger items as well as the "odds and sods and bits and pieces".
"A lot of it is supply and demand. Everyone is just having to get the job done at the moment ... A lot of those costs are just getting paid."
But Grey, who owns Todd Grey Builders, said the long-term effects could come once the back costs from completed jobs revealed large increases, which meant higher costs for the next project.
"In the short term it has swallowed up the costs but long term with pricing we will see that jump."
However, he expected things will settle once the supply chain caught up.
Rotorua Branch Master Builders president Martin Dobbe said prices were going up but only incrementally.
"It all seems to be relative. Building prices are going up and so are property values," he said.
"It is more logistics. I haven't heard anyone say things were going up in price because they can't get it."
The Urbo Homes manager and company director said builders were "flat out" and people were struggling to find builders.
"Most of the guys are six to 12 months out."
BCITO chief executive Toby Beaglehole said there were 1069 Bay apprentices with 62 per cent enrolled in a carpentry qualification.
Beaglehole said numbers were up 30 per cent compared to last year with the average carpentry apprenticeship taking three to four years to complete.
"Taking on an apprentice has never been easier, with the Government's 2020 Budget offering significant investment in trade apprenticeships."
As part of the $1.6 billion Trades and Apprenticeships Training Package, $320 million has been set aside to support free trades training in critical industries, including the construction sector.
Another $412m has also been invested in the Apprenticeship Boost initiative, which offers support for employers to retain apprentices and to hire and train more people.
Note: The CHIP report measures the rate of change of construction costs within the residential market and covers freestanding and semi-detached single and two-storey dwelling homes.
Trade Me Property’s latest Rental Price Index is out.