'We've never seen anything like it': cost increases leave builders scrambling

Tuesday, 28 June 2022

Fletcher Building has apologised after a Canterbury builder captured video evidence of Gib stockpiling at a Fletcher Living construction site in Lincoln.

Continuing supply chain pressure and widespread inflation is leading to cost increases for building supplies, and putting the pinch on builders.

Fletcher Building owned building supplies merchant, Placemakers announced it would raise the prices of multiple construction staples over the next three months.

Framing timber would increase 15%, bagged concrete 10% and steel reinforcing will go up 8%, along with 13 other key construction materials.

Mark Trafford, director of Maintain to Profit Renovations, said in 15 years working in the building industry he had “never seen anything like this”.

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Mark Trafford, director of Maintain to Profit Renovations, said in fifteen years working in the building industry he had never seen anything like the current price increases.

Trafford said price increases were coming at builders every week from every major supplier on imported and New Zealand made goods.

“The cost increases are not small either. We are not talking 2% or 3%. We are seeing 10, 15, 20%, and sometimes even higher. It’s a massive problem for the industry” Trafford said.

The price increases meant builders were going to have to pass costs on to customers, he said.

“If we don’t, we will go out of business.”

Costs were rising so rapidly that Trafford was asking clients to pay for materials the day the job was signed off, to avoid a budget blowout.

Auckland University of Technology, professor of construction, John Tookey says inflationary pressures are going to hit everything that gets built in New Zealand.

The cost price of his projects had increased 15% in the past year, he said.

“Prices are moving faster than ever. It is hard to keep up.”

Registered Master Builders chief executive, David Kelly declined to comment when asked how an increase in the price of construction materials had affected builders.

Auckland University of Technology, professor of construction, John Tookey said the price increases would significantly impact projects budgeted on fixed contracts, such as residential housing.

“If your mortgage was for $1 million, and the cost increases to make the price of the build $1.2m, who is going to eat that price rise? Builders often can’t because they don’t usually carry a lot of strategic debt,” Tookey said.

Inflationary pressures would hit everything that gets built in New Zealand, he said.

“Over the short term we will see some significant dramas for the sector as we deal with the squeeze.”

Small businesses would be the most affected in the early stages, but larger businesses may also get hurt as the “virus” of failure crept up the food chain, Tookey said.

Infometrics principal economist Brad Olsen said the price increases represented continued pressure in the construction industry.

The cost of residential construction rose 18% this year, which reinforced a costly trend of large activity and strained supply, Olsen said.

As larger merchants such as Placemakers made it clear builders should expect continued price increases, it signalled continued inflation in the building supply sector, he said.

While the price rises for certain products could be blamed on international events, a number of key building supplies also faced domestic issues which were difficult to fix, Olsen said.

“The rising prices indicates a difficulty in securing products in general which pushes out time frames and delays construction.

“With a large amount of residential and infrastructure being built at the moment, this is going to have a run on effect for the wider economy,” Olsen said.