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New Zealand Economic Update - Construction March 2015

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W G Miller

The document provides information on the Canterbury earthquake rebuild in New Zealand including: - The total rebuild cost is estimated at $35 billion NZD, with half for residential and half for non-residential construction. - Rebuild activity is expected to peak in 2015-2016 and continue through 2017 for residential and to 2020 for non-residential. - Residential construction is shifting to rebuilding the approximately 24,000 homes damaged over $100,000 and some new builds. - Infrastructure and public building spending will remain elevated from 2015 through 2016. - Commercial construction consents doubled in 2014 and further increases are expected with rebuilding and improvements. - Labour and construction costs have risen significantly since

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Canterbury Earthquake Response Strategic Information for Businesses, 2015
Canterbury earthquake response – key questions 1. How big is the rebuild expected to be? • $35 bn in 2012 dollars (15% of annual national GDP) 2. How long do we expect activity to continue? • Peak in 2015/16, long tail for non-residential activity 3. What is the profile for activity? • Construction has increased, further increases expected over the coming year • Construction to remain elevated through to 2017 • Shift towards higher value residential construction, increases in non-residential spending 4. What are some of the key challenges? • Costs of construction • Availability of labour • Prices and rents • Duration of demand
How big is the rebuild expected to be? • Westpac estimate: $35 bn (2012 dollars, i.e. excluding cost increases) • Lower estimate than government • Cost increases will make some planned spending uneconomic, especially in the commercial sphere • Spending will still occur, but at a later date (BAU vs. rebuild) • Around half of spend is residential, half non-residential (breakdown over page). Reconstruction profile Westpac forecasts
How big is the rebuild expected to be? $bn (2012 dollars) Estimated spend to date (% complete) Comment Residential Land Westpac’s assumption $5 Assumed $1 to $3 bil (20 to 60%) • As of January EQC had completed around 77% of land settlements. Some of this will relate to cash settlements. Repairs (properties with damage less than $100k) Source: EQC/Fletchers $2.5 $2.2 + Privately funded repairs (95%) • Around 69,000 properties in the repair program. • As of 23 January, Fletchers EQR had completed 64,802 repairs. • Completion targeted in early 2015. Rebuilds/major repairs (damage over $100k, funded privately or through insurance) Source: ICNZ and Westpac estimates $7 to $10 Insurers: $1.1 bil + Private: Around $1 bil (10 to 20%) • Around 24,000 properties, many are likely to be rebuilt to higher than pre-quake standard. There will also be a number of new builds. • As of 1 Jan 15: 2,890 homes fully rebuilt by insurers, work on another 1,744 homes was underway and 5,700 in pre-construction. TOTAL RESIDENTIAL $14.5 to $17.5 $5 to 7 bil Non-residential Public and infrastructure SCIRT (Horizontal) Source: CERA/SCIRT >$2.5 Around $1.6 bil (65%) • At the 12 February 2015 around 65% of the total SCRIT program was complete • Targeted completion at end of 2016. Other including councils and community assets Source: CERA/CCDU $7.5 to $8.5 $0.9 to 1.1 bil (~13%) • Design and construction has begun on a number of projects. • Spending to remain elevated over 2015/16. Commercial Westpac’s assumption based on insurance payouts Around $7.5 to $10 $1.3 to 2 bil (around 20%) • Includes replacement of damaged assets, and significant betterment, excludes costs acceleration • $8 bil in commercial claims paid (current dollars) TOTAL NON-RESIDENTIAL $17.5 to $21 $4 to 5 bil TOTAL Around $35 $9 to 12 bil (around 30%)
How long do we expect activity to continue? • Total rebuild spending projected to peak over 2015/2016, 80% completion around 2018. • Residential construction has been increasing strongly • Peak projected over 2015/16, 80% completion by end of 2017 • Completion around 2020 • SCIRT (horizontal infrastructure) peak spend of around $40 mil month, completion in 2016 targeted, • Public/social asset spending ramping up now, planned spending to remain at high level through 2015 and 2016 before tapering off through to 2020 • Commercial spending ramping up more gradually, projected peak over 2016/2017, long tail
Profile of activity - Residential • Work to date has predominantly related to EQC’s repair program. The vast majority of spending in this program will be complete in early-2015. • Residential construction is shifting towards full-rebuilds/overcap repairs (around 24,000 homes), plus some new builds • Current consent issuance consistent with around 7000 new homes a year (around 21,000 new homes between 2015 and 2017) • Questions around strength of activity further ahead, and how many new builds/medium-density projects will be required 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 0 500 1000 1500 2000 2500 2000 2003 2006 2009 2012 2015 Number$m Number (RHS) Value Source: Statistics NZ, Westpac Sept 2010 Residential consents (annual totals)
Profile of activity – Infrastructure and public • Spending to rise over 2015, remaining elevated though 2016, tail out to ~2020. • CERA - $1.1 to 1.2 bn (e.g. Metro sports, stadium, convention centre) • Councils - around $1.1 to 1.2 bn (e.g. art gallery, library) • Education (Ministry of Education and tertiary providers) - $2.1 to 2.4 bn • Lyttelton Port - around $1 bn • Also health, justice, roading Public sector construction profile (Source: CERA, MBIE)
Profile of activity - Commercial • Around $800 mil of work was consented in 2014 (roughly double the pre-quake level), with a significant increase expected over the coming year • Extended period of strong activity • Betterment of assets occurring • Questions around timing of spending vs cost (economics of investment decisions) • Rents • Building size • Cost increases • When will spending occur? Is it rebuild or BAU? 0 500 1000 1500 2000 2500 3000 0 200 400 600 800 1000 1200 1400 2000 2003 2006 2009 2012 2015 Number $m Floor area (RHS) Value Source: Statistics NZ, Westpac Sept 2010 Non-residential consents (annual totals)
Labour market 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 %% Canterbury Auckland NZ Source: Statistics NZ, Westpac Sept 2010 • Unemployment in Canterbury is 3.5%, not far from pre-recession levels • Net immigration an important source of labour • Increases in construction and economic activity more generally will absorb spare capacity • Increasing construction activity in other regions, especially Auckland, will result in increased competition for resources • Between Dec 2011 and Dec 2014 base rates for construction labour rose 10% in Canterbury vs. 6% in the rest of NZ Unemployment by region
Residential building costs 500 750 1000 1250 1500 1750 2000 500 750 1000 1250 1500 1750 2000 2000 2003 2006 2009 2012 2015 $/sq mtr$/sq mtr Canterbury Auckland NZ Source: Statistics NZ, Westpac Sept 2010 Ave. build cost in Canterbury: June 2011: $1307 sq mtr Dec 2014: $1753 sq mtr (up 34%)
Non-residential building costs 0 500 1000 1500 2000 0 500 1000 1500 2000 2000 2003 2006 2009 2012 2015 $/sq mtr$/sq mtr Canterbury Auckland NZ Source: Statistics NZ, Westpac Sept 2010
House prices and rents in Christchurch (s.a.) 500 1000 1500 2000 2500 3000 500 1000 1500 2000 2500 3000 2000 2003 2006 2009 2012 2015 Index Index House prices Rents Sept 20102012 2013 2014 House prices 11.8 7.1 3.7 Rents 16.4 8.9 1.7 Source: Statistics NZ, MBIE, Westpac Year to Dec % change
Population growth and housing demand • Most of the damaged housing stock forecast to be repaired or replaced by end of 2017. • Rebuild estimates also include new builds. • Stats NZ projections imply growth in Canterbury’s population of around 53,100 people between 2018 to 2028 (range of estimates: 13,400 to 92,800) • Medium estimate implies the need for about 23,000 homes over 10 years (around 2,300 per year). • Comparison • Current: around 7000 new homes consented over the past year • Pre-quake: around 2500 to 4500 new homes built per annum.
So, now what? CLICK HERE How can you best use this information? If you’d like a one-on-one meeting with me to discuss the implications for your business

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New Zealand Economic Update - Construction March 2015

  • 2. Canterbury earthquake response – key questions 1. How big is the rebuild expected to be? • $35 bn in 2012 dollars (15% of annual national GDP) 2. How long do we expect activity to continue? • Peak in 2015/16, long tail for non-residential activity 3. What is the profile for activity? • Construction has increased, further increases expected over the coming year • Construction to remain elevated through to 2017 • Shift towards higher value residential construction, increases in non-residential spending 4. What are some of the key challenges? • Costs of construction • Availability of labour • Prices and rents • Duration of demand
  • 3. How big is the rebuild expected to be? • Westpac estimate: $35 bn (2012 dollars, i.e. excluding cost increases) • Lower estimate than government • Cost increases will make some planned spending uneconomic, especially in the commercial sphere • Spending will still occur, but at a later date (BAU vs. rebuild) • Around half of spend is residential, half non-residential (breakdown over page). Reconstruction profile Westpac forecasts
  • 4. How big is the rebuild expected to be? $bn (2012 dollars) Estimated spend to date (% complete) Comment Residential Land Westpac’s assumption $5 Assumed $1 to $3 bil (20 to 60%) • As of January EQC had completed around 77% of land settlements. Some of this will relate to cash settlements. Repairs (properties with damage less than $100k) Source: EQC/Fletchers $2.5 $2.2 + Privately funded repairs (95%) • Around 69,000 properties in the repair program. • As of 23 January, Fletchers EQR had completed 64,802 repairs. • Completion targeted in early 2015. Rebuilds/major repairs (damage over $100k, funded privately or through insurance) Source: ICNZ and Westpac estimates $7 to $10 Insurers: $1.1 bil + Private: Around $1 bil (10 to 20%) • Around 24,000 properties, many are likely to be rebuilt to higher than pre-quake standard. There will also be a number of new builds. • As of 1 Jan 15: 2,890 homes fully rebuilt by insurers, work on another 1,744 homes was underway and 5,700 in pre-construction. TOTAL RESIDENTIAL $14.5 to $17.5 $5 to 7 bil Non-residential Public and infrastructure SCIRT (Horizontal) Source: CERA/SCIRT >$2.5 Around $1.6 bil (65%) • At the 12 February 2015 around 65% of the total SCRIT program was complete • Targeted completion at end of 2016. Other including councils and community assets Source: CERA/CCDU $7.5 to $8.5 $0.9 to 1.1 bil (~13%) • Design and construction has begun on a number of projects. • Spending to remain elevated over 2015/16. Commercial Westpac’s assumption based on insurance payouts Around $7.5 to $10 $1.3 to 2 bil (around 20%) • Includes replacement of damaged assets, and significant betterment, excludes costs acceleration • $8 bil in commercial claims paid (current dollars) TOTAL NON-RESIDENTIAL $17.5 to $21 $4 to 5 bil TOTAL Around $35 $9 to 12 bil (around 30%)
  • 5. How long do we expect activity to continue? • Total rebuild spending projected to peak over 2015/2016, 80% completion around 2018. • Residential construction has been increasing strongly • Peak projected over 2015/16, 80% completion by end of 2017 • Completion around 2020 • SCIRT (horizontal infrastructure) peak spend of around $40 mil month, completion in 2016 targeted, • Public/social asset spending ramping up now, planned spending to remain at high level through 2015 and 2016 before tapering off through to 2020 • Commercial spending ramping up more gradually, projected peak over 2016/2017, long tail
  • 6. Profile of activity - Residential • Work to date has predominantly related to EQC’s repair program. The vast majority of spending in this program will be complete in early-2015. • Residential construction is shifting towards full-rebuilds/overcap repairs (around 24,000 homes), plus some new builds • Current consent issuance consistent with around 7000 new homes a year (around 21,000 new homes between 2015 and 2017) • Questions around strength of activity further ahead, and how many new builds/medium-density projects will be required 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 0 500 1000 1500 2000 2500 2000 2003 2006 2009 2012 2015 Number$m Number (RHS) Value Source: Statistics NZ, Westpac Sept 2010 Residential consents (annual totals)
  • 7. Profile of activity – Infrastructure and public • Spending to rise over 2015, remaining elevated though 2016, tail out to ~2020. • CERA - $1.1 to 1.2 bn (e.g. Metro sports, stadium, convention centre) • Councils - around $1.1 to 1.2 bn (e.g. art gallery, library) • Education (Ministry of Education and tertiary providers) - $2.1 to 2.4 bn • Lyttelton Port - around $1 bn • Also health, justice, roading Public sector construction profile (Source: CERA, MBIE)
  • 8. Profile of activity - Commercial • Around $800 mil of work was consented in 2014 (roughly double the pre-quake level), with a significant increase expected over the coming year • Extended period of strong activity • Betterment of assets occurring • Questions around timing of spending vs cost (economics of investment decisions) • Rents • Building size • Cost increases • When will spending occur? Is it rebuild or BAU? 0 500 1000 1500 2000 2500 3000 0 200 400 600 800 1000 1200 1400 2000 2003 2006 2009 2012 2015 Number $m Floor area (RHS) Value Source: Statistics NZ, Westpac Sept 2010 Non-residential consents (annual totals)
  • 9. Labour market 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 %% Canterbury Auckland NZ Source: Statistics NZ, Westpac Sept 2010 • Unemployment in Canterbury is 3.5%, not far from pre-recession levels • Net immigration an important source of labour • Increases in construction and economic activity more generally will absorb spare capacity • Increasing construction activity in other regions, especially Auckland, will result in increased competition for resources • Between Dec 2011 and Dec 2014 base rates for construction labour rose 10% in Canterbury vs. 6% in the rest of NZ Unemployment by region
  • 10. Residential building costs 500 750 1000 1250 1500 1750 2000 500 750 1000 1250 1500 1750 2000 2000 2003 2006 2009 2012 2015 $/sq mtr$/sq mtr Canterbury Auckland NZ Source: Statistics NZ, Westpac Sept 2010 Ave. build cost in Canterbury: June 2011: $1307 sq mtr Dec 2014: $1753 sq mtr (up 34%)
  • 11. Non-residential building costs 0 500 1000 1500 2000 0 500 1000 1500 2000 2000 2003 2006 2009 2012 2015 $/sq mtr$/sq mtr Canterbury Auckland NZ Source: Statistics NZ, Westpac Sept 2010
  • 12. House prices and rents in Christchurch (s.a.) 500 1000 1500 2000 2500 3000 500 1000 1500 2000 2500 3000 2000 2003 2006 2009 2012 2015 Index Index House prices Rents Sept 20102012 2013 2014 House prices 11.8 7.1 3.7 Rents 16.4 8.9 1.7 Source: Statistics NZ, MBIE, Westpac Year to Dec % change
  • 13. Population growth and housing demand • Most of the damaged housing stock forecast to be repaired or replaced by end of 2017. • Rebuild estimates also include new builds. • Stats NZ projections imply growth in Canterbury’s population of around 53,100 people between 2018 to 2028 (range of estimates: 13,400 to 92,800) • Medium estimate implies the need for about 23,000 homes over 10 years (around 2,300 per year). • Comparison • Current: around 7000 new homes consented over the past year • Pre-quake: around 2500 to 4500 new homes built per annum.
  • 14. So, now what? CLICK HERE How can you best use this information? If you’d like a one-on-one meeting with me to discuss the implications for your business