Construction, Infrastructure and Housing
Industry Transformation Plan
Construction is one of the seven areas of New Zealand’s economy where the Government wants to develop an industry transformation plan. Engagement with businesses in this sector will be sought with the aim of achieving well informed outcomes that are aspirational and achievable.
The Government notes that investing in infrastructure is at the core of its economic recovery plan with the aim of filling the “infrastructure deficit” and growing jobs and boosting economic growth.
Key highlights are:
- Increasing infrastructure investment from $42.2 billion over the next four years to $57.3 billion. This includes $10 billion of investment in roads and public transport projects and $5.6 billion in Education,
- Increase of the multi-year capital allowance from $8 billion to $12 billion over the forecast period, with $3.9 billion of this to be spent on
- $810 million for KiwiRail to purchase new locomotives and wagons and complete upgrades to mechanical facilities, as well as invest in maintenance of its existing assets such as locomotives, wagons, ferries, and IT.
- $761 million of capital for Education including $634.1 million for school property.
- $700 million for District Health Boards to invest in new assets.
- $306 million to support the much needed redevelopment of Scott Base to ensure it remains operational.
- $300 million of additional capital for New Zealand Green Investment Finance Ltd to continue to invest in climate change mitigation.
- $4.5 billion per year is also planned for investment in transport services and infrastructure through the National Land Transport Fund, which comes from petrol excise duty and road user charges. It funds public transport, roads, cycle ways, rail and safety improvements all over Aotearoa New Zealand.
Budget 2021 talks about creating jobs with unemployment forecast to drop to 4.2 percent with 200,000 entering employment over the next four years.
Like Budget 2020, Budget 2021 is seeking a lot from an industry already under significant pressure particularly from a shortage of skilled staff and supply and price increases on materials. These issues need to be addressed for the construction industry to meet the demands being asked of it.
The Government is committed to increasing the pace and scale of new housing supply by supporting the provision of infrastructure and housing and expanding the Land for Housing Programme. BDO Partner James MacQueen points out: “The Government alone cannot solve this; a significant contributor to the delays is the capacity of territorial authorities to process building consents and perform building inspections at the rate the industry needs”.
James adds - “The challenge in meeting these goals and making housing more affordable is that there is currently very significant escalation in the costs of a wide range of building materials that are likely to stay high, plus the shortage of skilled staff is increasing labour rates, with the combined effect of significantly increasing the costs of construction in all sub-sectors".
In Budget 2021, Treasury estimates that annual house price increases will peak in June this year at 17 percent before dropping over the forecast period to 0.9 percent, as a result of both the Government’s interventions and macro-prudential tools such as loan-to-value ratios.
The Government refers to Treasury’s house price changes as a “sharp adjustment but a very necessary one”.
So what does Budget 2021 deliver:
- Establish a $3.8 billion Housing Acceleration Fund. This is to ensure that there is the infrastructure in place to make land ‘build-ready’.
- Investing $380 million in Māori housing through the initiative, Whai Kāinga Whai Oranga. $350 million of the Housing Acceleration Fund is ring-fenced to provide infrastructure to support this programme. Budget 2021 also provides Kāinga Ora with substantial resources to acquire land and over $133 million to carry out its urban development functions, and it funds the increased support within First Home Products announced in March.
- Extending Warmer Kiwi Homes to ensure more low-income homeowners can benefit from an extra 47,700 insulation and heating retrofits.
Please contact your BDO advisor to know more.