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Home / Business / Companies / Construction

Auckland flood damage will delay construction downturn

Liam Dann
By Liam Dann
Business Editor at Large·NZ Herald·
7 Feb, 2023 04:20 AM3 mins to read

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Flood recovery work won’t end up being much of a boost to building activity – but may see some projects delayed while repair work takes priority, says Westpac acting chief economist Michael Gordon. Photo / Supplied

Flood recovery work won’t end up being much of a boost to building activity – but may see some projects delayed while repair work takes priority, says Westpac acting chief economist Michael Gordon. Photo / Supplied

While the recent flooding is unlikely to have a major impact on New Zealand’s economic outlook it could delay the building sector downturn and keep construction costs elevated for some time, economists say.

“Based on what has been reported so far, we estimate that it could be in the range of $500m, and potentially higher,” said Westpac acting chief economist Michael Gordon in a new report this morning.

“This makes it New Zealand’s most expensive weather-related event by quite some margin. However, it’s well short of the cost of repairs that followed the 2010-11 Canterbury earthquakes, which came in at around $40 billion (spread over many years).”

Repairs following the 2016 Kaikoura earthquake cost around $2 billion, he said.

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To put these numbers in perspective, nationwide building activity (including infrastructure) was currently running at over $50 billion, he said.

However, the timing of this event was significant given the industry was already stretched to capacity, especially in the residential building sector, Gordon said.

“This is a major contrast with the Canterbury earthquake rebuild when the industry was starting from a depressed state in the wake of the GFC recession,” he said.

“As a result, we suspect that flood recovery work won’t end up being much of a boost to building activity – rather, we may see some projects delayed or shelved while the repair work takes priority.”

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“The additional pressure is instead likely to be channelled into prices.”


There were signs that construction cost inflation was starting to slow at the end of 2022, but it may now take longer to face, Gordon said.

Food price inflation would also likely hold up for longer, he said.

“Vegetable growers were already contending with poor growing conditions that saw prices rise by 23 per cent over 2022, and this year’s flooding has caused major damage to some crops in the Auckland region.”

Both of these effects should be temporary and not a source of sustained inflation that might warrant a response from the central bank, he said.

“However, they will require some patience to look through as they feed into the inflation data over the coming months.”

Kiwibank economists agreed that patience would be needed.

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“The impact of the floods a fortnight ago will be long-lasting, the rebuild will likely be slow because it comes at a time when industries like the construction sector, are already running at full capacity,” a new report said.

Construction costs had eased back as supply chains slowly normalised but flood repairs exacerbating the lingering shortages could see construction costs accelerate.

“As a key driver of domestic inflation, the rebuild frustrates the outlook,” they said.

The residential construction sector is under pressure. Photo / File
The residential construction sector is under pressure. Photo / File

But while the Auckland floods will have economic consequences, they were unlikely to change the trajectory of monetary policy, KiwiBank said.

“We believe downward momentum in overall inflation is building and forward-looking indicators suggest economic activity is set to slow. We still see the RBNZ increasing the cash rate by 50bps later this month.”

ASB economists today downgraded their forecast for this month’s Official Cash Rate from a hike of 75 basis points to just 50 basis points.

That brings all the major bank economists into line on this view.

“The labour market data was the last straw tipping us back to picking a 50bp OCR increase, instead of 75bp, at the upcoming February Monetary Policy Statement,” said ASB chief economist Nick Tuffley.

“After this month, we still expect a 50bp increase in April that takes the OCR to a peak of 5.25 per cent.”




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