New Zealand Labor Shortage After Quake Stirs Wage Worries

Design engineer Stephanie Thompson quit her job in Australia’s mining industry and moved with her husband to New Zealand to help rebuild the earthquake-damaged city of Christchurch.

“Work isn’t that great back home anymore and we’ve got work here,” said Thompson, 30, who moved from Perth in June to design waste-water systems on a six-month contract that she’s extended for a year. In Perth, “it’s all money and mining. We came here to do something more meaningful.”

New Zealand’s third-largest city is tapping labor markets in Australia, Asia and the U.K. as well as other parts of the country to find enough workers for a NZ$30 billion ($26 billion) rebuilding program. That may have a downside: it threatens to raise wage costs in the economy, fueling inflationary pressure.

“There isn’t enough labor available to do the work,” said Robin Clements, New Zealand economist at UBS AG in Christchurch. “If we haven’t got enough workers we need to attract them from the rest of the country or overseas. If we pay more to attract people, then their employers are going to be paying more to retain them.”

As many as 15,000 extra workers including plumbers, carpenters and electricians will be needed in the city, according to a government report published in December. In some skilled trades, demand may outstrip supply, meaning migration will be essential, it said.

Homes Wrecked

The city and the surrounding Canterbury region suffered a magnitude 7 earthquake in September 2010 that damaged homes and roads, with no loss of life. In February 2011, even as the effects of the first shock were being repaired, another temblor hit, killing 185 people and wrecking much of the city center, including its cathedral, sports stadium and tallest hotel.

About 100,000 homes were damaged and 7,000 were condemned. About 70 percent of the shops, hotels and office buildings in the heart of the city have been demolished. People left the city after the disaster and the 7,930 aftershocks that followed. The population fell to 363,100 in June 2012 from 376,700 two years earlier, according to Statistics New Zealand.

Rebuilding is accelerating after it had been delayed by aftershocks, issues over insurance and identification of which land was no longer suitable to rebuild homes on because of unstable soil. In the central city, a reduced cordon remains in place as final demolitions continue, making it hard for land owners to plan new developments and attract tenants.

“The delays in opening up the city are creating an environment of disengagement,” a group representing about 200 property owners said in a report last week, “reducing building owners commitment to the central city.”

Policy makers are “mindful of the potential rise in inflationary pressures as construction activity increases over the coming years,” the central bank said in its monetary policy statement on March 14.

Inflation Risk

“Reconstruction in Canterbury also poses some upside risk for inflation,” the statement said. The region’s housing market, building costs, construction wages and rents are rising “at rates well above national averages.”

The boost in Christchurch’s economy contrasts with much of the rest of the country, where the effects of a strong currency, excess capacity and a summer drought are suppressing growth.

This two-speed economy allowed central bank Governor Graeme Wheeler last month to keep the benchmark interest rate at a record-low 2.5 percent and say he expected it to remain there for the rest of the year. The central bank forecasts inflation won’t reach the 2 percent midpoint of the range Wheeler is required to target until the second half of 2015.

Clements at UBS forecasts 2 percent inflation by mid-2014 and projects a rate rise in September because of the rebuilding program in the south and a recovering housing market. New Zealand faces a challenge of raising economic growth from a projected 2 percent to 3 percent a year, Prime Minister John Key said in Wellington today.

‘Ridiculous’ Wages

“There’s huge pressure on labor,” said Rob Uffindel, general manager of Christchurch Ready Mix Concrete Ltd. “There are businesses out there paying ridiculous amounts of money for guys to drive trucks and diggers.”

The closely held company doubled its fleet of trucks to 48 in the past 18 months as demand for concrete in building foundations, walls and driveways accelerated to levels last seen during a building boom in 2007. Fourth-quarter concrete sales in Christchurch rose 51 percent from a year-earlier, according to industry data.

“We need more people than we can put through our training program,” Uffindel said in an interview in a temporary office at the company’s site north of Christchurch, where the September 2010 quake damaged its administration building.

It takes six months to train a driver to operate the concrete pouring equipment on his vehicle, he said.

Labor Squeeze

The labor squeeze is filtering through to prices. The cost of building a new house in Canterbury surged more than 10 percent in the fourth quarter from a year earlier, compared to a 3.1 percent average gain for the country, Statistics New Zealand said in January.

Wages in the construction industry in Christchurch rose on average 5.5 percent last year, compared with 3.9 percent nationally, according to the quarterly Labor Cost Index produced by Statistics New Zealand on Feb. 5.

Finance Minister Bill English predicted the labor market in Canterbury will keep growing. The region added 16,100 jobs in 2012 and the jobless rate fell to 4.9 percent in the fourth quarter, compared with a national rate of 6.9 percent, according to government figures. First quarter figures are published May 9.

“We are seeing significant number of migrant workers coming in,” English said last month in an interview. The government is seeking conditions that are “attractive to investors, which is a labor market that can meet the fast-growing demand of construction.”

Overseas Search

Canterbury added a net 1,200 migrants in the year ended February, compared with a net loss of 3,750 people a year earlier in the aftermath of the quake, according to Statistics New Zealand. Companies have advertised for staff overseas using recruitment sites such as U.K.-based and in Ireland.

The earthquakes prompted the return of some expatriate New Zealanders like Julian Watt, who went back to his homeland in September after more than six years in London. The 35-year-old architect took advantage of demand for his skills in Christchurch rather than settling in his home town of Wellington, the nation’s capital.

“We thought everything else is basically in recession globally apart from parts of Asia, and New Zealand was still going strong,” Watt said in a telephone interview. “It was a good opportunity to come back while there was growth in Christchurch to do this rebuild. We’re busy employing people.”

Major Projects

Fletcher Building Ltd., the nation’s largest construction company, is gearing up for a surge in demand for commercial buildings and major projects such as university and hospital expansions, said Alan Orange, who co-ordinates the Auckland-based company’s operations in Canterbury.

“There will be some issue with key labor supply,” Orange said in an interview in February. “There will come a point where the ability to get enough subcontractors with requisite skills will hit.”

Fletcher can bring teams from other parts of New Zealand and may hire overseas, he said. “Should the resource not be able to be found here, we won’t have any hesitation in employing offshore people,” he said.

For Thompson, the decision to relocate from Australia was about more than a job opportunity.

“Work you do in engineering can be under-appreciated,” she said in an interview at her office in west Christchurch. “Here people have gone through a lot. If you haven’t had your sewerage connected then you realize that sort of work is bloody important. It’s nice to do that.”

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