New Zealand Institute of Economic Research (Inc)
Media Release, 3 April 2025
For immediate release
Long delays in construction stages and the associated disruptions can significantly impact businesses and local communities. The latest NZIER Insight, co-authored by Senior Economists Ting Huang and Roshen Kulwant, points out the need to incorporate short-term disruption impacts into infrastructure investment decision-making to manage or mitigate them while meeting future infrastructure needs effectively.
Large-scale infrastructure projects tend to focus on the long-term benefits with little to no consideration of the short-term disruption impacts
The authors highlight how projects like the Auckland City Rail Link (CRL) have demonstrated how a lack of consideration of the disruptive impacts of construction works on local businesses can lead to ongoing costs to the public. “Since the first stage of construction works, there has been reporting of how business and property owners have been impacted, including losses of amenity, revenue, rental income and even negative impact on mental health. Trends in pedestrian traffic and business counts in the Auckland CBD point to signs of a decline in activity in areas near the CRL construction even before the COVID lockdowns.”
Although the CRL business case acknowledged the potential disruptions of its construction works, no budget was allocated to compensate for the potential losses to local businesses. “It was only in 2019 that a business hardship programme was set up when a petition of affected businesses caught public awareness,” the authors said. A subsequent $12 million Targeted Hardship Fund was established in 2021 as a business survival mechanism to support those businesses struggling to survive due to disruptions and construction delays. More recently, the Small Business Programme set up by Auckland Council and the CRL Alliance provides the affected businesses with tailored business support services and microgrants to support them in growing business resilience.
International studies suggest growing scrutiny of disruption impacts on businesses
A survey by the Canadian Federation of Independent Business found that small businesses reported an average 22 percent loss of their revenues during the most significant construction project affecting them over a five-year period from 2018.
The impacts of transport project construction on local businesses can go beyond the short-term loss of revenue. A study on the Los Angeles Metro Rail found a higher risk of business failure for businesses located within 400 metres of construction. More recent studies in the United States highlight the vulnerability of local businesses to the risk of business failure and displacement even after construction completion.
“Disruption impacts on businesses can be greater and more prolonged than you think,” said the paper’s authors.
The Seattle Light Rail project is an example of how to mitigate disruption impacts on businesses
The Seattle Light Rail project in the United States sets an example of how the disruption impacts can be successfully mitigated. In anticipating that local businesses could be impacted by the light rail construction in both the short term and long term, the regional transport authority leading the Seattle Light Rail project had:
- Set aside US$50 million four years in advance of project construction for a range of financial assistance and business support programmes
- Started business outreach programmes ahead of project construction to build a trusting relationship with the local community and better understand the assistance and support businesses need to get through project construction
- Partnered with community-based organisations experienced in business development and support.
By the end of the construction period, 85 percent of all businesses along the light rail line were still operating.
Key elements of effective management of short-term disruption impacts
The authors comment that the Seattle Light Rail project experience provides useful learnings for New Zealand to draw on for managing the short-term disruption impacts in future infrastructure projects. “By assessing and understanding the impacts of short-term disruptions, support programmes can be put in place to manage disruptions better.”
Key elements include:
- Outreach programmes to involve businesses and communities early and throughout the project
- Establishing clear lines of responsibility to enable contact between stakeholders, decision makers and community representatives
- Financial support should be clearly identified, planned for and communicated as soon as possible.
For further information, please contact:
Ting Huang – Auckland office
Senior Economist
027 266 0969, ting.huang@nzier.org.nz
Roshen Kulwant – Wellington office
Senior Economist
027 376 8258, roshen.kulwant@nzier.org.nz
