Source: New Zealand Infrastructure Commission, Te Waihanga
A new research report from the New Zealand Infrastructure Commission, Te Waihanga, shows that the growing costs of building infrastructure do not need to be inevitable.
“New Zealand invests heavily in infrastructure but doesn’t always get the best results. Compared with other high-income countries, we spend more but achieve less,” says Geoff Cooper, Chief Executive, New Zealand Infrastructure Commission.
The report brings together evidence on the factors that shape the cost and affordability of infrastructure. It highlights where there is opportunity to influence costs to help us make better choices and get more from our infrastructure investment.
“Our findings challenge the idea that infrastructure will always get more expensive over time. At some points over the last 150 years, we have evidence that infrastructure prices actually fell,” says Cooper.
“Some types of infrastructure have gotten significantly cheaper over time. Between 1980 and 2012, the price of solar panels dropped over 90%. Wind turbine costs fell over 30% between 2005 and 2017 even after adjusting for inflation.
By contrast, for more complex projects like motorways, costs per lane kilometre more than tripled in real terms over the past two decades.
“To understand why, we examined three key drivers of infrastructure costs: input costs such as materials and labour, construction productivity, and project scope and design.
“Construction material prices can move quickly and are largely a function of global prices. Labour costs tend to be closely linked to overall labour market dynamics. Productivity is more controllable, but it can take several years or decades for sustained improvements to be realised.
“In the short to medium term, our research highlights that the scope of projects and how we design them are particularly important levers for improving affordability,” says Cooper.
“The research points to making greater use of standardised and repeatable approaches, improving how projects are planned and sequenced, and taking a disciplined approach to scope and design to keep costs down.
“That said, infrastructure projects are complex and cost growth is rarely attributable to a single factor. That means improving and sustaining affordability over time will need to come from a combination of actions across the infrastructure system.
“New Zealand faces significant future infrastructure demands. Without improvements in productivity and the way we plan and deliver infrastructure, meeting those needs could require an increasing share of our resources, placing greater strain on the wallets of New Zealanders. This research improves our understanding of the actions we can take to get better bang for buck,” says Cooper.
The findings in this report will support the Commission’s approach to examine the drivers of cost growth in the land transport sector that the Government recently directed the Commission to undertake.
Notes
‘Making every dollar count: A review of the drivers of infrastructure costs in New Zealand’ will be available at www.tewaihanga.govt.nz.The cost of infrastructure delivery has been an ongoing area of focus for the Commission.The Commission has previously published research looking at how infrastructure delivery costs stack up compared to other countries and how factors like the cost of materials, cost of consenting, and productivity growth can impact New Zealand’s construction costs, and undertaken reviews of several major projects.This report builds on our previous research and each section summarises key findings from the previous research, provides updated data where possible, and describes relevant developments that have occurred since 2022/23.