[+] Industry in Crisis: Finding a Way Forward for Construction

It’s the thumping hangover from hell for Australia’s development sector that some say will last for years But it wasn't brought on by too much celebratory fizz during the momentary distraction of ringing in another new year. Instead, the cause of this crapulence is turbocharged demand—a reckoning from years of undersupplied housing exacerbated by high population growth and pandemic era stimulus measures. As one prominent industry figure puts it, it has gone “crazy, completely bonkers”. And the lingering morning-after of mixed fortunes has exposed an acute vulnerability, not just for the development industry but a growing nation. The dreaded L-word. Labour, that is—or more precisely the dire lack of it. Nowhere near enough of it to deliver a $230 billion pipeline of critical public infrastructure across the country along with a targeted 1.2 million new homes within five years. Not to mention thousands of luxury apartments approved for construction—the only prevailing pay dirt for many private developers in the face of huge construction cost increases and a string of interest rate hikes. The reality is in 2024 and beyond an increasing number of projects will not get out of the ground because there are simply too few skilled workers to go around. Master Builders Australia chief executive Denita Wawn has crunched the numbers and by her calculations the scale of the shortfall is staggering, to say the least. “We’re estimating we need just shy of half a million new entrants into the industry to meet demand over the next three to five years,” she tells The Urban Developer . ▲ The construction industry is facing a massive labour shortfall, Master Builders Australia chief executive Denita Wawn says. That not only includes about 300,000 additional skilled workers but also 200,000 to replenish the ranks of those retiring or expected to leave the industry during that period. “We’ve got 1.3 million workers at the moment,” Wawn says. “In terms of covering attrition rates to keep that 1.3 million, plus the extra workers we’re going to need to build a record number of homes and the clean energy transformation—yeah, we need about half a million new entrants …” She pauses. Then, channeling the thoughts of an entire industry, she adds: “Which is scary”. Two years ago, global consultancy Arcadis was already dubbing the labour and skills shortage “the defining challenge of the decade … [and] likely to bite the hardest in 2023 and 2024”. Not a bad bit of crystal ball gazing. Worst ‘yet to come’ But according to Wawn, the next six months are looking “a bit more steady-as-she-goes” and, unfortunately, the worst is yet to come. “From 2024-25, but particularly 2025-26 onwards, for a period of five years there’s going to be a massive increase in house building and the corresponding infrastructure needed around that, whether it be roads, retail, health or education. “So, we’ve got a labour shortage that’s going to continue for quite a long period of time.” Simultaneously, a government-led boom in infrastructure investment is continuing to soak up labour, creating increasingly slim pickings in the residential construction market. And although the latest Infrastructure Australia market capacity report indicates a flattening in the overall infrastructure spend, its data also shows the national shortfall in public infrastructure workers has risen to 229,000. Up from 214,000 the previous year, it is not a huge jump but, significantly, still not getting any better. Grappling with the mind-boggling task at hand, the industry and government are now scrambling to instigate solutions. In November, the federal government cut 50 projects from its Infrastructure Investment Program after an independent strategic review that found it was undeliverable. ▲ Australian Constructors Association chief executive Jon Davies: We already don’t have enough people to do everything we need to do. As well, it has unveiled an overhauled migration strategy in a bid to fill Australia’s skill shortages—although industry leaders believe a sharper focus on the trades is needed. Clearly, however, there is no Berocca, bloody mary or any other hair of the dog-like remedy to ease what has emerged as the sector’s most crippling headache and biggest ongoing source of cost pressure and disruption. “There are no easy answers here,” Australian Constructors Association chief executive Jon Davies says. “We already don’t have enough people to do everything we need to do and that situation is getting worse by the day. “But we can’t just stop building stuff, we’ve got to address the problem. “It has reached a tipping point now where something just must change. “And I believe this shortage of people will be the catalyst that finally makes us address the whole way the construction industry operates. “Because if we don’t, we’re just going to run out of people.” Davies says migration, for sure, has “always been part of the solution”—particularly with an economy that is “technically at full employment”. United approach crucial But he says the real key to solving the labour shortfall would be through the creation of a national construction strategy developed by the government, industry and unions. Crucially, he says, the industry needs to become “a more attractive destination” for people to work. “Currently, the industry is not an attractive place to work,” Davies says. “We’re working long and inflexible hours. We still think Excel spreadsheets are the height of technology. And we really don't care too much about the environment. “And all of those things are turning off the next generation of workers.” ▲ The building industry needs to become “a more attractive destination” for people to work. However, changing the industry’s old ways does not offer a quick fix for its current workforce woes. “The only short-term fix is to find ways to do more with the resources we've already got,” Davies says. “And there’s a huge opportunity to get more productive. “The construction industry is currently less productive than it was 30 years ago. We could turn that around, there are plenty of opportunities … lengthy procurement processes that just give the illusion of value for money, overly bureaucratic design review processes. “That could all change overnight with the stroke of a pen if government delivery agencies were focused to do that. And some pretty significant gains could be achieved very quickly.” Master Builders’ Wawn is not so sure, particularly given recent and impending changes to industrial relations legislation impacting contractors and tradies that, she says, threaten to further hamstring the capacity of the industry. “If you look at all the current settings around productivity in this country, the decline we’ve seen in the last couple of decades is actually only going to get worse. “And unless there is a radical transformation of automation in our industry, which won’t happen anytime soon, we’re still going to need a huge amount of workers. “So as much as I’d like to be able to agree with Jon, I think the reality is there are no indicators in the economy or the industry that say we’re going to get productivity improvements in the foreseeable future.” Skilled migration has key role With the exception of skilled migration, she says, solving the industry’s worker shortfall will require a long-term, multi-pronged approach. “Skilled migration will play a key role in plugging that gap … [but] a better approach to skills recognition and assessment is vital. We need workers who are qualified and recognised to be out on the tools now, not in six months.” But first and foremost, Wawn says, is the need to reduce the number of likely departures from the industry. ▲ Reducing departures from the industry, including retirees, is vital, says Wawn. “For example, if people are retiring, looking at how we can get them doing other jobs as trainers or more office-based work rather than them just leaving the industry.” Among the other issues on her list that need to be urgently addressed are the drop-out rate of apprentices—currently standing at about 50 per cent—as well as making the industry a career pathway of choice, especially for women. “The industry was always short-sighted in just attracting half of the working population—men,” says Wawn, who is Master Builder Australia’s first female chief executive in its 134-year history. Women’s participation in the industry has improved in recent years but only at a trickle. In the past decade, it has risen from 12 per cent to only 14.5 per cent and, at the blue collar level, from 1 per cent to just 2.5 per cent. But in a sign that inroads are being made into increased gender diversity, the number of women commencing trade apprenticeships last year spiked to more than 2200. Davies agrees increased female participation has the potential to have a “significant impact” on the industry’s capability and capacity constraints. Again, it won’t happen overnight. Changing the culture Notably, however, a benchmark culture standard is to be introduced this year aimed at overcoming core challenges facing the sector. Under the standard—an initiative of the Construction Industry Culture Taskforce—targets will be set to increase the representation of women, address gender pay gaps and create a more inclusive working environment. “That has the potential to significantly change things,” Davies says. ▲ Data indicates a “right-sizing” is under way in the industry. “At the moment, we’re essentially missing out on half the country’s working population so there’s a huge opportunity. “Even if we can just double that current participation level by women it would have a significant impact on the shortfalls that we have as an industry.” Meanwhile, according to Robert Sobyra—executive director of research and planning at the federal government’s newly-established national jobs and skills council BuildSkills Australia—the latest data indicates a “right-sizing” is under way in the industry. Builders and subcontractors are slashing their headcounts while heavy and civil contractors are still booming on the back of infrastructure spending. “We’re in this sort of post-pandemic backwash that we’re navigating out of at the moment,” he says. “The overall unemployment rate is going to go to 5 or 5.5 per cent over the next 12 to 18 months and the construction industry, no matter what anyone tells you, is not going to be immune from that. “There’s going to be a slackening of construction labour and the data is already showing that employment is starting to come off. “But that’s really just a short-term adjustment because a lot of companies really tooled up during the pandemic. So it’s more like a normalisation of the market that’s going to happen over the next 12 to 24 months, which is a healthy thing because wage pressures have gotten pretty out of control.” Beyond that, however, Sobyra says: “Over the longer term we’ve got a structural deficiency of labour, no question about it. “We’ve got a growing population that obviously requires more and more construction workers to service it. We’ve got the renewables transition, the geopolitical stuff—defence expenditure and onshoring of manufacturing—so more and more constriction workers that are needed. ▲ The construction industry will not be immune to the employment rate moves tipped for 2024. “And at the same time we’ve got an ageing population, which is crunching the supply of workers.” ‘Fit young men don’t want to work for us’ Part of the solution going forward, he says, is overcoming the industry’s “big cultural problems”. “There’s a job to be done to refashion the industry that makes it more appealing to a broader church to turn around that haemorrhaging that we’re experiencing from our core constituency—basically, fit young men who don’t want to work for us anymore.” But Sobyra concurs with Davies that even convincing more people to work in construction won’t be enough unless there are also significant improvements in industry productivity. “That’s the bigger game … we can build smarter and I think that’s the real answer here. “Embedding modern methods of construction, which is basically just shorthand for off-site prefabricated manufacturing of building components. That's a big opportunity. “But also, we need industry more broadly to start investing in and adopting productivity-enhancing technologies. Speak to any contractor who has really lent into the digital space, they'll tell you about the significant gains that they’ve achieved. “And I think this is the decade where these technologies become business-as-usual. “Necessity is the mother of invention and when you’re coming up against a labour crunch the size of this there are very few other options.” Market will find its way In the interim at the industry’s cyclical coalface, Hutchinson Builders chairman Scott Hutchinson remains a true believer in letting the market work things out. And that’s exactly what he predicts will happen with the industry’s labour shortage. “It’s the lack of labour that’s driving down productivity,” Hutchinson says. “Everyone’s begging for people. “It’s just hell to get workers. It’s hard to schedule anything. And all the time, others are trying to steal your people. ▲ BuildSkills Australia executive director of research and planning Robert Sobyra; Master Builders Australia chief executive Denita Wawn; Scott Hutchinson; and Australian Constructors Association chief executive Jon Davies. “You can call it a labour shortage but it’s just that the demand is too high … it’s stupid overheating, the worst I’ve seen, it has gone crazy, completely bonkers.” As one of the country’s largest private builders, Hutchies—like many top tier construction firms—has needed to considerably expand its ranks from 1400 to 1900 workers in the past few years. But even that hasn’t been enough to meet demand, particularly in the pinch point of south-east Queensland. “We’re probably accepting 10 per cent of the work that is coming in at present,” Hutchinson says. “But what’s going to happen is very little private work is going to go ahead, most of it will dry up. It just doesn’t stack up. “And we’re seeing it now … things are starting to settle down, hopefully. The work is starting to come off. “The market just has to sort itself out, there’s nothing anyone can do.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Industry in Crisis: Finding a Way Forward for Construction

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