Australia and New Zealand market intelligence: Construction cost pressure intensifies

Our latest report finds that Australian and New Zealand’s construction industries are under intense pressure as softening demand, increased construction costs, and skills shortages slow new investment across the region.

Australia’s activity slows amid challenging market conditions

Australia’s construction markets remained active over Q1 2023, despite a noticeable slowdown in new private sector investment, which will see activity soften over the outlook. Ongoing labour shortages, increased risk of builder insolvencies and significantly higher construction costs continue to generate challenging market conditions.

Labour shortages remain the biggest challenge moving forward, with skills shortages being experienced across all markets. Additionally, higher preliminary costs are adding to construction costs, driven by high inflation, high labour costs and strong demand. On the other hand, there continues to be robust spending by state and federal governments on construction projects, which will help to keep markets active while private sector investment softens.

Stubbornly high inflation, ongoing interest rate hikes and uncertainty on the outlook are cooling economic activity across the Australian economy. The high cost of living pressures and the substantial increase in interest rates are having a significant impact on households across the country. While these tougher market conditions persist, we can expect that growth in the domestic economy will be weaker. 

New Zealand gears up for a recession

The effects of high inflation, increased interest rates and surge in construction costs have continued to impact new construction investment across New Zealand’s markets. While there remains a sizeable pipeline of major infrastructure projects, total construction activity is expected to soften over 2023 and 2024. 

While the prices for building materials appear to have stabilised, with some experiencing a decline, persisting skill shortages remain a crucial challenge across New Zealand's construction markets. We expect that elevated labour costs and market capacity constraints will continue to be the driving forces behind construction cost escalation in 2023.

New Zealand’s economy contracted over the last quarter of 2022, a sign that the country’s high inflation and higher interest rates are slowing activity across the economy. The chances of a recession in the New Zealand economy are now higher, affecting numerous sectors and industries with conditions already resembling those of a recession.

For further information contact:

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Simon Kearney
Director, ANZ

t: +61 282 450 000
e: