A new Te Waihanga report, “The lay of the land: Benchmarking New Zealand’s infrastructure delivery costs”, explores how the cost to build infrastructure in New Zealand compares with costs in other high-income countries. The report draws upon a companion report by Oxford Global Projects and a range of other data sources.
“Our statistical analysis suggests that we have similar costs for four types of infrastructure projects: surface rail stations, electricity transmission lines, onshore wind farms, and hospitals,” says Peter Nunns, Te Waihanga Director of Economics.
“Where we appear to face a cost premium for infrastructure projects, however, is with complex, large-scale infrastructure projects,” says Nunns.
“We identified cost premiums for four types of complex, large-scale projects: urban and rural motorways, road tunnels, and underground rail projects,” says Nunns.
Te Waihanga looked at reasons why some countries may build infrastructure more cheaply than others. We identified four overarching reasons why the cost of similar infrastructure projects might vary between countries, including input costs (such as labour, materials, equipment, and land), construction productivity, differences in physical context (such as geology, climate, and built environment), and policy and institutional settings for planning, consenting, and delivering infrastructure.
“New Zealand faces lower construction wages but higher costs for equipment, bare land, and some infrastructure construction materials. Our overall input costs for vertical construction are similar to other high-income countries. However, projects that need to buy a lot of concrete, machinery, or land may cost more in New Zealand,” Nunns says.
“The physical environment can have a significant impact on project costs. New Zealand is a seismically and volcanically active country, which has implications for some of our infrastructure delivery costs. At the same time, in some areas, such as wind power, New Zealand has shown an ability to quickly adopt new technologies and methods,” says Nunns.
“Benchmarking infrastructure delivery costs is a way to find out both how we’re doing and if there are ways we can improve the affordability of infrastructure delivery. Knowing what projects should cost to build and maintain can guide us towards better infrastructure decisions.
“The reality is that sometimes, we have no choice but to build an expensive piece of infrastructure – but if we have robustly tested that choice, we can be confident that we are addressing our infrastructure challenges as affordably as possible,” Nunns says.
The report identifies five ways that we can lift our game:
- Ensure government acts as a sophisticated client of infrastructure. This means taking the time to understand what we are building before we set out to build it, establishing good processes and principles for making decisions about project scope and design, and investing in the right capability to plan, procure, and manage infrastructure.
- Strengthen independent advice for infrastructure prioritisation and establish a pipeline of future investment to ensure more certainty in proposed projects.
- Be open to new technologies and methods. New Zealand’s success in delivering wind farms at a similar cost to other high-income countries and ability to rapidly benefit from global improvements to wind turbine design highlights the value of adopting new technology.
- Ensure efficient planning and consenting systems are in place that can make it easier to develop cost-effective infrastructure solutions and avoid costs arising from delays or scope uncertainty. Resource Management reform is an opportunity to reduce the delays in project planning and achieve good environmental and infrastructure outcomes in a more predictable way.
- Conduct ongoing infrastructure delivery cost benchmarking to have a better understanding of what projects should cost.