Identification and analysis of building consent, inspection and approval costs: Economic environment

Increases in building consent fees, the number and cost of inspections and approval costs must be considered within the context of the overall increases in prices that occurred during the period from 2001 to 2007. Several economic indicators are available that illustrate the overall changes in building and construction costs. These are:

• Consumer Price Index (CPI) - the general indicator for inflation within the economy.
• Capital Goods Price Indices (CGPI), which measures the movements in the average levels of prices for both residential building (dwellings and outbuildings, hostels, boarding houses) and non-residential building (shops and offices, warehouses, factories, farm buildings, and other non-residential buildings).
• Labour Cost Index (LCI) - wage and all labour costs for construction labour.

Chart 1 below shows the increase in these indices over the period 2001 to 2007 and the general increasein building costs compared with inflation.

CPI inflation during this period is 16.4% and is not incorporated into the other indices. The rate of changes is important rather than the actual index number.

The total increase of the Labour Cost Index for construction over the period is 20%. It should be noted that LCI is only a unit price of time and does not represent the total cost of labour including overheads or changes in contractor and subcontractor charges. It also does not take into account the quantity of labour provided.

The total increase in the Capital Goods Price Index over the period is 41% for residential building and 32% for non-residential building. These indices are based on the general level of purchase costs of fixed capital assets and are specifically adjusted to exclude the price effects of changes to quality. The steady increase of the CGP index has been linked to increased costs of construction inputs (especially structural steel in the case of non-residential buildings) and increases in subcontractor charges, although industry sources cited increased council fees and charges as an important contributor to increasing costs in 2005.

The 2001-2007 period has been marked by increases in residential and non-residential building costs, which are more than double the increases in CPI inflation and all sectors’ capital goods prices. Construction labour cost indices show an increase in construction wages of 2.9% more than the increase in wages for all sectors. Contractor charges, which are not included in the construction LCI, have also been noted as a driver of construction price increases.