Construction productivity shows room for growth

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A new report by the New Zealand Infrastructure Commission – Te Waihanga highlights the importance of productivity growth in reducing construction costs and addressing workforce demands.




Economic performance of New Zealand’s construction industry, a new report by the New Zealand Infrastructure Commission – Te Waihanga, has found that between 2000 and 2020, labour productivity increased 23% in building construction and 25% in construction services — but only 5% in heavy and civil engineering construction.

This compares to economy-wide labour productivity growth of 30%.

“Faster productivity growth can help bring down costs, improve quality and reduce pressure on an already stretched workforce,” according to Te Waihanga director of economics Peter Nunns.

Overall news positive for construction

“While the overall news is positive for the construction sector, low productivity growth in civil construction is concerning as it represents about 80% of the cost of building and maintaining New Zealand’s infrastructure networks,” Nunns says.

“This is everything from power and water connections to transport and telecommunications.

“Our estimate is that if civil construction had matched building construction for productivity growth over the last 20 years, our infrastructure construction prices would be about 10% lower, workforce requirements would be about 11% lower, and we’d be building 5% more infrastructure than we do now.”

The researchers also compared New Zealand’s construction labour productivity growth to other OECD countries, and found that New Zealand sits in the top half of the pack.

“New Zealand’s productivity performance is not as strong as some Eastern European countries that are experiencing ‘catch-up’ growth.

“But our productivity growth outpaces a number of countries that are considered high performers in construction, such as the United States and Japan.

“An interesting finding from this research is that, internationally, construction productivity growth doesn’t appear to be affected by boom-and-bust cycles, such as the 2008 Global Financial Crisis.

“We also found that economies of scale don’t play a strong role. If anything, larger countries experience slower productivity growth than smaller ones,” Nunns says.

Inefficient permit processes slow growth

“However, international comparisons do show that construction permit processes have an impact. Inefficient processes are correlated with slower construction productivity growth.

“This could reflect the fact that they make it more difficult to adopt new designs, technologies and building methods.

“We have an opportunity to significantly lift infrastructure construction productivity. This is essential for addressing the infrastructure challenges ahead of us.”

Other findings in the report revealed that during the early stages of the Covid-19 pandemic, large construction firms’ profitability, solvency risk, and liquidity risk improved slightly.

This highlighted the resilience of the construction sector during this period, and significant government financial support through measures such as the Covid-19 wage subsidy.

However, the sector remains vulnerable to ongoing cost pressures and demand risks.

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