Will building costs come down?
In New Zealand, construction costs are rising at the fastest pace on record, partly due to the pressures of worldwide lockdowns but now that lockdowns are easing and supplies have begun flowing again, can we expect to see a decrease in costs for consumers?
Whether in the USA, Europe, or right here in NZ, you often hear politicians and industry leaders calming public concerns about rising costs. If “this” or “that” is done, they say, we can expect to see the prices decrease. But in reality, when having prices for anything really come down? As Kiwis, we suffer an initial shock when prices go very high, but after the shock wears off, we become numb to the new cost. It becomes normal. We may moan, but we put up with it because we don’t have any choice. For a good example, who would ever have expected us to be paying $3 per litre of petrol?
Holding on to profit
In my personal opinion, costs might come down, but only at the highest level. Even when building supplies become more readily available and shipping costs (which have soared during the pandemic) return to normal, suppliers, logistics companies, and factories will probably hold on to the price gains they made and not pass on the savings to the public. These businesses now know that customers are willing to pay a certain price, so that price is maintained. Plus, with multiple links in the chain, the one that backs down loses. Hence, costs are passed down they reach the consumer. The extra costs the consumers pay become additional profit to feed exponential growth. This is the case globally.
Are monopolies to blame?
In New Zealand, GIB plasterboard and the monopoly that Fletchers enjoys in this area are often blamed for the high costs of building supplies, but GIB product is actually reasonably competitive. Other competing products still have shipping and additional costs to add to their products. When all totalled, GIB is usually cheaper than many are led to expect.
While domestic demand may be softening slightly, it’s important to remember that New Zealand relies on many imports. So, while there may be less demand here, the demand in other territories, plus any issues around shipping, will impact supply and, therefore, the price in New Zealand too. While prices may begin stabilising on building materials, they are unlikely to come down.
Unfortunately for Kiwis, despite a softening local demand, the price of building will remain where it is for the foreseeable future. This is due to lingering supply constraints from abroad, demand elsewhere, and the tendency for the higher end of the supply chain to hold onto price gains leading to a knock-on effect.