Why infrastructure costs as much as it does


A new Te Waihanga report shines a light on projects often costing more than expected, looking at past changes in construction wages and prices for five key infrastructure construction materials

Why do construction input costs change? analyses several decades of price data for construction inputs to understand how they are affected by both global and local factors.

The report finds that infrastructure providers have limited control over their input prices.

Price changes mostly reflect the impact of things that are happening outside of the New Zealand construction sector, says Te Waihanga Director of Economics Peter Nunns.

“For labour costs, we found that construction wages closely track wages elsewhere in the New Zealand economy. In the short term, high demand for construction workers can push wages a bit above this trend, but construction wages tend to return to trend within two years.

“Global factors are the primary driver of material prices, especially for traded commodities like structural steel, timber and diesel fuel. Changes in global prices flow through to New Zealand very quickly. Even when we produce or source some materials here, prices are still based on global markets,” he says.

“The exception is materials like concrete and aggregates that are too heavy to ship long distances. Regional factors, like limits on setting up new quarries near major projects, are likely to play a stronger role for those materials.”

The findings of this report build upon earlier research by Te Waihanga that looks at infrastructure construction productivity and infrastructure delivery cost benchmarking.

“Understanding what drives infrastructure costs allows us to better plan and mitigate risks and get more infrastructure for the money we spend,” Nunns says.

“While labour and material costs are hard to control, there are some levers we can pull. Infrastructure providers and decision-makers can focus on driving productivity in construction and optimising projects’ scope and design to ensure that we get the most bang for our buck.”