[+] Productivity an Albatross Around Industry’s Neck

“We’re down to an average of three days a week onsite, I’m tearing my hair out.” That was the lament of one developer, who did not wish to be identified, while many others just like them acknowledge the odds are stacked against them at the moment. Planning risk, productivity challenges and construction costs are proving a major stumbling block for many at the coal face. And these challenges are exacerbated by the nation’s $230-billion infrastructure pipeline and its ambitious 1.2 million houses national accord, all to be delivered in the next five years. While Infrastructure Australia’s 2023 Infrastructure Market Capacity report notes governments had taken actions to smooth the five-year pipeline, some significant capacity constraints remain, namely, skills shortages, non-labour supply challenges and the nation’s stagnating productivity. Infrastructure Australia forecast a deficit of 131,000 full-time trades and labour workers this year, and says that deficit is growing at its fastest pace, and labour cost escalations are rampant. But there is precious little developers can do to address that albatross around the construction industry’s neck. The Productivity Commission’s latest productivity bulletin paints a fairly dire picture. It shows labour productivity stagnated in the March quarter across the board, with the construction industry going backwards. Productivity Commission data shows construction industry productivity fell 1.8 per cent last year—and notes businesses are working harder for less output. This presents a major challenge for a nation facing a housing crisis and an uphill battle to accommodate people, while housing starts are not keeping pace with population growth. Productivity Commission deputy chair Dr Alex Robson said there was no labour productivity growth during the 12 months to March, 2024 with the level remaining just above the 2015–2019 average. “With the end of the Covid productivity bubble, labour productivity seems to have reverted to the stagnation we’ve seen for most of the past decade,” Robson said. Workforce follows the public money Australian Constructors Association chief executive Jon Davies says that significant real wage rises and stagnant productivity is forcing up construction costs, which is directly affecting the viability of projects big and small. “The disparity of wages between government and private sector projects has left the private sector unable to compete,” Davies says. “We can’t afford to continue with business as usual; project planning needs to be improved and construction costs need to be lowered to ensure the country can afford the infrastructure it needs.” Construction industry wage and productivity growth ▲ Source: Australian Constructors Association Arcadis executive director of cost and commercial management Matthew Mackey says the current industrial relations landscape is also weighing down the industry. “Amid the post-pandemic recovery, Australia’s construction sector continues to grapple with political turbulence and industrial strife, escalating costs and stifling productivity, which is threatening the very viability of projects and businesses,” Mackey says. “Risk allocations including those associated with the changing industrial relations environment are significant impediments to business viability.” Cost of construction ‘only going up’ The cost of construction looks like it will continue its upward trajectory with the CFMEU Victoria inking a deal for a 21 per cent pay rise in the next four years, while its NSW counterpart has one-upped its southern brethren, hammering out a 24 per cent pay deal in the four-year period with compounding—the biggest in its history. One construction business recently told The Urban Developer there was a marked difference in productivity on EBA and non-EBA sites, while another said it could deliver projects 30 per cent cheaper and 30 per cent faster on non-EBA sites. According to Turner &amp; Townsend’s International Construction Market Survey for 2024, Sydney remains Australia’s most expensive city in which to build at $4463 per sq m, while Brisbane has nabbed second place at a rate of $4145.62 per sq metre. Turner &amp; Townsend head of real estate for Australia and New Zealand Julian Kerwood says it is all about the imbalance of labour supply and demand. And it’s no more pronounced than in the Sunshine State, which faces a tough grind in delivering serious housing targets and an Olympic Games in eight years. “We are the third most expensive region in the world for construction labour costs,” Kerwood says. “And it’s only going up. “Some markets are heating up, notably Queensland, Western Australia and South Australia, and then you’ve got other markets that are cooling a little bit. “Brisbane is the hottest market, but then there’s this inability to get labour and it puts pressure on the cost side of things,” he says. Construction labour supply imbalance Indeed recent data from the National Centre for Vocational Education Research indicates the pandemic apprenticeship boom is well and truly over. The 50 per cent wage subsidy for employers taking on apprentices during the pandemic ended in June, 2022, and building and construction apprenticeship commencements dropped 22 per cent in the year to December 2023. Close to 42,000 people began a building and construction-related apprenticeship in 2023, down from 54,035 in 2022. Master Builders Australia chief executive Denita Wawn has warned that prolonged construction labour shortages would lead to a $57-billion reduction of Australia’s gross domestic product in the next five years “Despite a sizeable workforce of over 1.35 million people, the industry is facing acute shortages with an annual exit rate of 8 per cent, of which we are currently only replacing half of that rate,” she said. ▲ WorldSkills Australia competitor Bailey Loenneker, a fourth-year refrigeration apprentice, will compete at the world titles in France in September. Image: WorldSkills Australia While much of the narrative around solving labour shortages has focused on ensuring the right mix of skilled migrant workers, Kerwood says it’s a fraught conversation. “The skilled labour needs to be in the areas that you need it, not just the right skills but in the right regions,” he says. But the ageing population is also biting in the construction industry. In 1985 the number of construction workers aged 15-24 years was 21 per cent. This is now down to 15 per cent, while the number of workers over the age of 55 has increased from 7 per cent to 17 per cent. “We have an older workforce and less people coming in … and that’s causing some issues,” Kerwood says. There will also be a “big transition” for skilled labour into renewable energy and net-zero projects into the medium term. “If it’s about approvals, then unfortunately there has to be an appetite for that,” he says. Innovation a priority Kerwood says there needs to be more political impetus for expediting projects and ensuring the teams in councils and planning panels are well resourced to meet demand. “Statistics show that productivity hasn’t shifted greatly in the past 20 years,” he says. But Kerwood says the adoption of new technologies, facade systems and prefabrication are ways in which the industry could circumvent the great labour challenge, “but you need leadership in this space”. Something he and Building 4.0 CRC chief executive Professor Mathew Aitchison agree on. Last month Aitchison told The Urban Developer he believed that government needed to create a “culture of innovation” . He is a big proponent of modern methods of construction and says Australia’s high-cost, low-tech building sector is an ideal target for the disruption that many experts say is heading towards the industry. ▲ Pre-fabrication presents an opportunity to disrupt in the construction space. Kerwood says pre-fabrication businesses are often at the mercy of market cycles and he has seen many fold off the back of government decision-making. “The support to the pre-fabrication industry has been hot and cold. The government needs to support the industry with a steady pipeline of work,” he says. He says the private sector will not be able to scale up without investment commitments from government. And while the Victorian Government has announced it is toning down its big spending Big Build program to free up capacity, Kerwood says there are challenges with this reasoning. He says we risk losing highly skilled labour to international markets with big pipelines of infrastructure projects. “You’ve got to be careful not to turn it down too quickly, it’s a balancing act,” he says. “The reality is there’s a big infrastructure spend on the books and potentially it only gets more difficult from here.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Productivity an Albatross Around Industry’s Neck

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