A quarterly snapshot of issues and trends for New Zealand’s infrastructure sector by the New Zealand Infrastructure Commission, Te Waihanga.

What’s in the Pipeline

The New Zealand Infrastructure Commission Pipeline pulls together key information on the infrastructure projects planned for New Zealand and sources project data direct from government, councils, utilities and others. The Pipeline has grown from approximately 176 projects and total value of $6.1 billion in 2019 to more than  2,700 projects and $65.6 billion at the end of 2021.  

The Pipeline includes projects that have a level of certainty around timing. For projects with a longer horizon such as Let’s Get Wellington Moving and Auckland Light Rail, the ANZIP Pipeline(external link) and others can be a useful source of information.   

We are continuing to build on and improve the data in the Pipeline and it remains a one-stop summary of what’s coming up for industry.

Pipeline snapshot

Our Pipeline is updated quarterly. Key changes since the last update include: 

• An additional 22 organisations have updated project information
• 65 completed projects were removed from the Pipeline, totalling $1.5 billion
• Additional projects from Auckland airport have been added
• The Christchurch City Council infrastructure program has been added, including
• 247 new projects valued at $2.2 billion. This includes:
  • $800m water
  • $400m transport 
  • $1billion community facilities (including the new stadium)

Shovel ready projects

The number and value of shovel ready projects is now beginning to decrease as projects reach completion and are removed from the Pipeline. Since the last quarter, 30 projects have reached completion.

Forecast project spend by sector

The forecast annual spend by sector for the projects in our Pipeline has been modelled. This year, spend on these projects is forecast to reach $11.3 billion, up from $10.7 billion in the last quarter. The increase is driven by the addition of projects to the Pipeline, such as those added by Christchurch City Council, which helps to improve our national view of infrastructure investment. 

The modelling shows that transport projects continue to dominate the total spending on pipeline projects, accounting for just over 30% of forecast spend in 2022 (see Figure 1). Annual spend on water projects is forecast to continue increasing, up 50% from nearly $1.1 billion in 2022 to over $1.6 billion by 2024.

Source: Te Waihanga Pipeline

Regional spotlight: Canterbury

Interview with Ruth Cable - Head of Programme Management Office, Christchurch City Council

Christchurch City Council has added their capital programme to the Pipeline consisting of 247 projects.

We asked Ruth Cable the Head of Programme Management Office at Christchurch City Council about their projects.

Project spotlight: Te Pae Christchurch Convention and Exhibition Centre

John O’Hagan, General Manager of Development at Ōtākaro Limited, the Government agency that has developed and will own the facility, tells us about the project.

Economic insights

By Peter Nunns, Director of Economics, Te Waihanga

Construction cost inflation – how does New Zealand measure up?

Construction costs are rising rapidly in New Zealand. Residential and non-residential costs rose by more than 10% last year, and similar increases are forecast for the upcoming year. Construction costs are rising at their fastest rate since the Global Financial Crisis.

Construction cost inflation reflects rising demand colliding with constrained supply. Infrastructure providers, property developers, and households are trying to build more than ever, but shortages of construction labour, material supply chain bottlenecks, and Covid-induced slowdowns have gotten in the way. Other countries are also facing similar issues, which raises the question: How do we stack up when it comes to cost inflation?

Benchmarking construction cost inflation

We sourced residential construction price indices for New Zealand and 30 other OECD countries, plus the European Union as a whole*. This data shows that New Zealand has experienced above-average construction price inflation over the last year: We had the 10^th-highest construction price inflation in the OECD during this time.

However, high construction price inflation isn’t just a Covid-era phenomenon. Over the last five years, New Zealand had the seventh-highest construction price inflation in the OECD. Our residential construction price inflation averaged 5.2% per annum from 2016 to 2021.

The following chart shows how New Zealand’s construction price inflation compares to selected OECD countries. Switzerland has experienced the lowest inflation – 1.3% over the last year – while Canada has experienced the highest inflation – 20.3% over the last year.

Source: ABS, Eurostat, StatCan, SNZ, Census Bureau

Scaling up to build?

Prior to the Covid pandemic, OECD countries had diverging housing construction trends. In some countries, including New Zealand and Australia, rapid population growth has increased demand for housing, while others, like Japan, are growing more slowly. In some European countries, like Ireland and Greece, housing construction still hasn’t recovered from the Global Financial Crisis.

All else equal, we would expect faster growth in residential construction to lead to higher construction price inflation. However, some countries may be better at scaling up to build while keeping price inflation at more moderate levels.

Figure 3 shows the pre-Covid relationship between growth in residential construction investment and growth in residential construction prices in New Zealand and twelve other OECD countries that had fully recovered from the GFC**. Between 2014 and 2019, the median country experienced 21% growth in residential construction output and 12% growth in residential construction prices.

The relationship between construction output growth and price growth varies between countries. For instance, Sweden and Finland both experienced similar growth in construction output (19% vs 17%), but construction price inflation was three times as rapid in Sweden (15% vs 5%). This suggests that Finland is better at scaling up to meet increased construction demand.

Source: ABS, Eurostat, SNZ, OECD.Stat

Prior to Covid, New Zealand had higher construction price inflation than other OECD countries with comparable housing market trends. Residential construction output rose by 21%, but construction prices rose by 24%. When we try to build more, we must ‘buy’ each 1% increase in residential construction output at the cost of 1.2% inflation. On average, our peer countries can ‘buy’ each 1% increase in output at the cost of 0.6% inflation – half as much construction price inflation as we incur.

Covid revealed our problems – it did not cause them

Construction price inflation has reached unprecedented levels during the Covid pandemic. While New Zealand is not an outlier, it has experienced more rapid construction price inflation than most OECD countries over the last year.

Even before the Covid pandemic, New Zealand struggled to scale up to build. Relative to other OECD countries, we purchase increased construction output at the cost of high construction price inflation. This reflects long-term issues around workforce capacity and capability, material supply chains, and volatility of investment. These ‘preexisting conditions’ have made our construction market unusually vulnerable to Covid – highlighting the importance of solving those issues to build resilience and meet our long-term infrastructure challenges.

*Residential construction indices are more comparable between countries than infrastructure-specific construction price indices. These comparisons exclude Turkey, which is experiencing extremely high rates of inflation across the board due to broader macroeconomic issues.

**Residential construction investment is measured using national accounts data on real (constant-price) gross fixed capital formation in dwellings published by the OECD and the IMF. This measures the value of both new construction and renovation activity.