ACT: Simon Court – The cost of Labour

The cost of construction rose a record 2.4% in the three months ended March, and 7.3% in the past year. CoreLogic chief economist Kelvin Davidson said price increases were occurring as the demand for materials outstripped supply. That’s called inflation, where there is too much money chasing too few goods. Labour wants you to believe it is an international problem that is outside of their control. The truth is quite different.
Labour often touts that a record number of dwellings were consented in the year ended February at nearly 49,800. CoreLogic points out the building industry might only have the capacity to support 30,000 to 35,000 properties per year.
If they cannot get the timber when it’s needed, and get it at reasonable rates, then the industry cannot build homes at an affordable price.
The cost of Labour policy starts on the forest floor. Last week the owner of a small forestry company told me that apart from the cost of diesel, all the extra costs to produce logs for timber come from government. My forestry friend pointed to environmental regulations designed to protect fresh water, which the Labour government imposed in 2020.
Their harvesting operation uses a cable hauler to lift tree stems from where they are felled to a landing where they are loaded onto trucks. The cable hauling system is like a flying fox for logs. Unlike ground-based operations where logs are dragged to a landing, cable hauling has minimal impacts on the environment.
My forester friend now needs a $4000 resource consent for working near every watercourse in each valley. The conditions for each consent are the same. Nothing in the consents has changed the way he has worked for decades. It’s just another cost.
When the logs get to the mill Labour policy rings up another cost. Sawmills need heat and energy to dry and process timber. Some sawmills utilise wood waste as well as coal to produce steam to kiln-dry the timber. However electricity and natural gas are still the main energy inputs in the North Island.
I met with the executive team of a major wood processor recently. They told me their electricity costs have almost doubled in the past two years, and natural gas would increase by 40 percent when new contracts started in April 2022. They pointed to the Labour governments’ 2018 ban on offshore natural gas exploration.
Businesses depend on long term energy security to support investment in production like big timber mills. The year after the ban on gas exploration was a dry year for the hydro dam catchments. Electricity prices were much higher than normal.
At the same time natural gas supply from existing fields was restricted while long term maintenance was underway. Usually these short term supply issues would resolve themselves naturally and prices would return to long term averages. But because of the Labour government policy banning gas exploration, long term energy prices have stayed high.
Government policy imposes costs in the forest and at the timber mill. This puts up the price of timber before it even gets to the merchant. That is why ACT would focus on better policy that removes unnecessary cost from the build.
Firstly, dump the RMA and allow industries like forestry to codify how they manage environmental effects. Expensive consents would be a thing of the past. The Infrastructure Commission backs this approach. Secondly, reverse the ban on offshore exploration for gas and oil. Affordable and secure energy, which must include natural gas, is vital for a healthy economy.
These two ACT policies will help reduce inflation and deliver thriving communities.

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