Chief Executive | Time to balance big builds | Property champions on DV

Like eating dry Weetbix.

The more construction we do the harder it gets.

Market capacity and labour scarcity are the key construction cost drivers to the end of the decade. Some key building products will remain undersupplied. Builder insolvencies are still rising. In many markets, project viability remains clouded.

Even after landing capital partners and navigating high-friction planning systems the cost and delays in creating homes, commercial and industrial projects will be turbocharged by this historic labour and market capacity scarcity. 

How did we get here? Sadly, in a well-intentioned way.

Mostly-justified big infrastructure* and transport spends have swiftly followed or peaked after the pandemic. Big builds are not the majority of construction value delivered annually in this county and yet they are the first option among equals for contracting firms and individuals seeking certainty in a volatile market.

As covered extensively by the AFR, a third of the federal government’s ten-year $80 billion transport spend is supposed to be out the door by mid-2025. Costs are up 41 per cent or $32.8 billion on those 700 odd projects alone.

On a smaller scale, important green and defence infrastructure will increasingly attract existing talent away from vital city-building.

Equally, more than 500,000 welcome people are arriving this coming year and not enough are future construction trades. For example, Urbis tells us that the Victorian construction workforce alone will need to employ another 191,000 people by 2034 to deliver their housing targets.

All this is enough to cause a po-faced IMF to remonstrate, ‘The Commonwealth government and state and territory governments should implement public investment projects at a more measured and co-ordinated pace, given supply constraints, to alleviate inflationary pressures …’.

So the solution is to actively manage the big build pipelines or, as identified by the Master Builders, create 500,000 additional construction workers across the nation by 2026.

The crunchy, dry reality for 2024 is we need to try both.

*’Some of the commentary has assumed that every single thing that was in the pipeline was fantastic – [benefit cost ratio] of 2:1 – and I don’t think that is necessarily the case … some of those projects actually haven’t had any sort of assessment done at all.’

Infrastructure Australia CEO, Adam Copp telling us what he really thinks at the AFR Infrastructure Summit

Next week, ThinCap.