There is a very strong ambition from the New Zealand Government to deliver on national projects in decarbonisation, transport, housing and urban densification, but in the current environment, it is difficult to achieve this ambition due to the uncertainty in the pipeline and the multitude of challenges facing different sectors.
International factors cause some issues, but others are exacerbated by restrictive immigration policies and project delays. Inflation and COVID-19 have further compounded the problem. It is important to note that the industry has been signalling pipeline and delivery issues to the government for over a decade.
Historical underinvestment in infrastructure has been a handbrake on the New Zealand economy and has led to ageing and neglected infrastructure, congestion in our cities and held back our regions from reaching their economic potential. Taking a long-term approach and looking to the future, the New Zealand Infrastructure Commission has developed a 30-year strategy in response to many of the challenges facing the industry.
Top industry challenges
Skills and material shortages continue to be the industry’s top challenge. Border restrictions and uncertainty around the current ‘immigration rebalance’ policy have caused labour shortages to worsen and are unlikely to diminish in the short term. Over the next few years, building the skills needed to improve infrastructure delivery will be a significant challenge for New Zealand, given the country’s small size and competition with Australia for highly sought-after skills as both countries’ infrastructure demands accelerate.
High inflation and construction costs are putting pressure on infrastructure budgets. Construction costs are much higher than initially estimated, creating a real risk that some major projects may be dropped or scaled back.
The impact of new technology is only 1 percent, which suggests that implementing digital innovations is more of an opportunity than a risk. As a result of new technology, construction projects are becoming more robust and efficient, enabling sustainable initiatives. It provides real and reliable protection against cyberattacks, better options for safer worksite conditions, and increased productivity, collaboration, and the ability to handle more complex projects. Keeping up with technological advancements enables the construction sector to mitigate potential delivery risks, and provide confidence for infrastructure investment.
The main challenge
Respondents clearly identified skills and material shortages, and highly restrictive immigration rules as the main challenge. More than half of the respondents believe the ability to retain and attract key talent in a competitive international market is paramount. The recent government announcement to extend the visa numbers across a few classes including construction will help. However, reopening the borders has resulted in a net outflow of New Zealanders and the improved outlook for the Australian labour market is an attractor.
The current supply chain issues and the rising cost of materials were also key concerns among respondents, fearing that these issues would continue to impact project deliverables and have the potential to stifle project margins.
Potential solutions
Respondents want to see a solution to the skills shortage. The large number of people in apprenticeships should ease labour shortages in the long term; however, urgent actions need to be taken to address the restrictive immigration rules imposed by the government, increasing training incentives, and addressing supply chain constraints that include opportunities for broader outcomes procurement. A need for a better understanding of the future projects pipeline was highlighted to allow organisations to build the capacity to deliver essential infrastructure.
Many respondents want better certainty from the government regarding infrastructure policies and a strategy to support businesses to succeed through less bureaucracy. Respondents indicated a standardised procurement framework across government agencies would be beneficial for ensuring infrastructure projects can be delivered to a high standard and be less exposed to supply constraints and cost volatility.