By Steve Mooney
Effective and financially sustainable asset management requires a commitment to maintenance and renewal with a close eye on future changes in demand, but these principles are only sometimes followed.
A recent report on New Zealand’s hospital infrastructure from the New Zealand Infrastructure Commission Te Waihanga is another example of the looming financial impact of underinvestment in a generation of post-World War 2 assets as they approach the end of their lifecycle.
Te Waihanga commissioned the New Zealand Institute of Economic Research (NZIER) to examine the country’s hospital infrastructure. The key finding was that NZ$115 billion will need to be spent over the next thirty years on publicly owned assets unless there are significant changes in approach.
That NZ$115 billion figure is four times more than current spending levels and is so high because half of the New Zealand hospital estate is over 40 years old.
Of this figure, more than half of the projected costs would be for maintaining and renewing hospitals, while 25% is due to increased demand for hospital space due to the ageing population.
The Building a Healthy Future report makes some equally applicable points in many other contexts.
IPWEA has previously reported the situation with Australia’s ageing public swimming pools, which are also nearing the end of their lifecycles and will require A$8 billion to repair or be replaced over the next decade.
In New Zealand, the report recommends the importance of a system-wide approach to planning and delivering infrastructure,” as well as the need for a longer planning horizon of 30 years, with careful consideration of the trade-offs that will inevitable”.
The NZ health system is undergoing a reform process to create a single integrated health service.
However, as the Te Waihanga report shows, the new system inherits the challenges left behind after decades of underinvestment.
The demand is escalating. The city of Dunedin is acquiring a major new hospital with a gross floor area of close to 100,000 square metres, but the report found that the estimated annual requirement for new hospital buildings in the two decades from 2033 will be almost equivalent to a new Dunedin Hospital every year.
Under the business as usual (BAU) scenario, hospital infrastructure investments would already represent between 0.4% and 1.2% of GDP annually, with the decade out to 2032 requiring the most investment. This is four times more than has historically been spent.
Of this investment, 55% will be required to replace or renew existing assets, while 38% will be driven by demographic changes such as ageing and population growth.
“There are no models of care scenarios big or bold enough to overcome the impacts of ageing on demand for infrastructure,” the report says.
“The service expansions and improvements that are wanted and needed to serve a growing, ageing, and more ethnically diverse population in a health system focused on equity are achievable, but only if considerable and sustained efforts are made to reduce infrastructure costs.”
To achieve this, the report recommends a deeper understanding of the space needs of health facilities with a view to the more efficient use of floor area.
Te Whatu Ora could also consider exploring options to reduce the cost of construction and refurbishment cycles and incorporate infrastructure investment modelling into service planning to inform better decision-making.
There are no easy solutions. The report modelling shows that forecast health budgets over the next 30 years will not deliver the required level of infrastructure investment. The inevitable conclusion is that New Zealand will have to ‘squeeze the lemon’ of infrastructure investment harder than ever and achieve significant efficiency gains to make up for decades of underinvestment. During this period, health planners looked to the short term and ignored the long-term challenges that are presenting themselves now.