[+] ‘Rubbish Year’: Scott Hutchinson’s Outlook for 2023

“We need a recession and a drought and things will get back to normal … and I reckon we might get both.” As those words bluntly pass Scott Hutchinson's lips, there is no hint of the Hutchinson Builders chairman trying to bite his tongue based on the notion of being careful what you wish for. But, then again, why would there be? To put it relatively mildly, things have gone from bad to worse in Australia’s construction industry during the past six months. Overheated with a $647-billion national pipeline of 5500 projects pushing demand-driven and supply-side risks to acute limits, and record rainfall causing costly timeline blow-outs, it is a sector at the mercy of prevailing economic and environmental extremes. “It’s a disaster … and we’ve got the Olympics to go,” Hutchinson says, referring to the challenge ahead for his hometown Brisbane in delivering the projects needed to host the world’s largest sporting event in 2032. “The biggest problem has been the wet. It's just been relentless—worse than Covid. “We could work around Covid but when you get that much rain you can't work around it. It's horrendous and it changes the mentality of a job.” Up to 40 per cent of construction days or more were lost on jobs in Sydney and Brisbane, where sites were soddened by the wettest year on record in 2022. Builders in both cities are still catching up from the months of delays caused by the crippling deluge. Hutchinson's unvarnished outlook—for the industry, not the weather—is for another “rubbish year” ahead but he nonchalantly adds “we’ll get through it”. Volatility in the development industry is something to which the head of Australia’s largest privately-owned construction company is well accustomed but this time around he says it is “the worst I’ve seen”. And a strategic move by his family's 111-year-old firm suggests he has no plans to wait for a recession-and-drought panacea to play out to nail down a semblance of normality over its deliverables and timelines amid the chaos. ▲ Scott Hutchinson: We need a recession and a drought and things will get back to normal … and I reckon we might get both. One sure thing to slow things up at the concrete and steel coal face of multi-storey residential and commercial development as well as civil infrastructiure works is a critical shortage of formworkers. To combat the problem—particularly in south-east Queensland, which makes up half its workbook—Hutchinson Builders has taken formwork in-house, recruiting more than 100 former employees of subcontractors that have gone to the wall. “It’s a key trade,” Hutchinson says. “The formwork and concrete placement determines how quickly it all goes up.” In the company’s quarterly newsletter Hutchies Truth, he says the growing dearth of formwork contractors had posed a “looming threat” to the business and it had to “step in and employ formworkers directly to ensure our projects could be completed on time”. Hutchinson tells The Urban Developer a major bugbear for the industry is the increasing number of mega projects—including both private development and public infrastructure works —“that are going on and on” and “taking up a whole lot of formworkers and formwork longer than expected”. He points to rival Multiplex’s $3.6-billion Queens Wharf development fronting the Brisbane River that has been delayed due to bad weather and Covid, with costs blowing out by at least $260 million. “We need to finish a lot of work before we start building again,” Hutchinson says. “Queens Wharf needs to get off the books … it’s going much longer than expected, so it’s holding huge numbers of people on the site and not releasing them.” The problem has not gone unnoticed by Infrastructure Australia, with the independent body observing the industry’s capacity to deliver is being further diminished by the continued rise in complex mega-projects. Its analysis indicates Australia’s five-year infrastructure investment pipeline has grown by $15 billion over the past 12 months. ▲ Queens Wharf needs to get off the books … it’s going much longer than expected, so it’s holding huge numbers of people on the site: Scott Hutchinson. “The scale of competition for scarce resources is now more evident than ever,” it says in its market capacity report released late last year. “An overheated construction market—characterised by escalating input costs, labour shortages and stagnating productivity—is placing extraordinary pressure on project timelines, cost and scope, therefore escalating risks for projects and programs. “There is increasing urgency to manage these risks and proactively sequence the major infrastructure pipeline.” Not mincing its words, it deems this is “crucial to controlling unfolding impacts such as growing constructor insolvencies and cost increases”. Aside from the inflated cost of construction materials—up 24 per cent in the past 12 months—the report identified the scarcity of skilled labour as the biggest single issue facing construction companies. As at October 2022, the nation’s public infrastructure projects were facing a staggering shortfall of 214,000 skilled workers. And this year, the demand for labour is forecast to grow by 42,000 to a peak of 442,000—more than double the projected available supply. Compounding the labour shortage, industry insolvencies have risen sharply, limiting the nation’s pool of builders—many of which are operating at 90 per cent capacity and above—to deliver the pipeline of work. In that regard, Creditorwatch chief executive Patrick Coghlan is the reluctant bearer of bad news for what lies ahead. According to its analysis, construction ranks among the top three industry sectors in terms of the number and increase of insolvencies during the past six months. It is also far and away the worst offender when it comes to late payments. “It’s definitely getting tougher out there,” Coghlan says. “We’re now seeing the spike in insolvencies that everyone’s been waiting for. ▲ Creditorwatch chief executive Patrick Coghlan. “We’re back at those pre-Covid insolvency numbers and still rising,” he says. “And we expect that to continue to climb, probably 15 per cent, maybe 20 per cent, above the pre-Covid numbers.” Formwork Industry Association chief executive Michael Sugg says the industry is under pressure and there are a plethora of factors contributing to the shortage of skilled formworkers. “Everyone is struggling, market pressures are being pushed down the line to the subcontractors, there's price gouging ... and, ultimately, if a company can't keep its head above water, then they go under,” he says. Sugg says there is now less than 60 formwork companies in the Australian market and “a lot of guys that are thinking of throwing the towel in.” By the end of the year, it also will be an industry without any specialist qualification or access to funding for apprenticeships as the Certificate III in Formwork/Falsework will cease to exist and be subsumed into carpentry. “The fact that formwork—being one of the largest employers of labour on a site at any one time, and one of the highest risk sub trades in the industry—has no tickets, training or access to funding ... it's appalling," Sugg says. “And that feeds directly into the industry's skills shortage issue.” Hutchinson says just when he thought things could not get any worse in about September-October last year “things really went crazy and prices went nuts”. “We didn’t pick it getting that crazy, or we wouldn’t have signed up for all the jobs that we took … I’d love to turn the clock back,” he concedes. ▲ Formwork Industry Association chief executive Michael Sugg: plethora of factors contributing to skilled worker shortage. And with industry instability worsening and insolvencies on the rise, that’s when the company decided it needed to make a strategic move to bring its critical formwork trades in-house. Hutchinson says the company has always been willing to “get down and dirty and do our own trades” when it is needed. During the construction boom leading up to the GFC it instigated a similar in-house expansion and bought 30 cranes. “If you haven’t got a crane you haven’t got a site,” Hutchinson says. “They don’t really make money but they give us control.” And that control—across cranes, hoists, scaffolding and now formwork—will be crucial as the industry weathers out what he predicts will be another 12 months of unrelenting pain in 2023. “It’ll be as bad as last year, maybe a bit worse,” Hutchinson says. “We're making under 1 per cent so it's not good at the moment.” As for interest rates, he says: “I hope they double ... if they keep jacking up interest rates, which I hope they do, it'll sort itself out”. Meanwhile, the number of developments not starting is on the rise, with softening off-the-plan sales—combined with inflated construction costs and the severe shortage of labour—pushing projects beyond the edge of feasibility. “It's the right thing to happen,” Hutchinson says. “We want more projects to stall so that the industry can get back on its feet. “We don't want anymore work to start. That’s what’s causing the problem, it's too much work. “Hopefully it comes off and comes off solidly. Builders do better when work is getting short, not when it’s booming. This has been a killer for builders, absolute killer.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] ‘Rubbish Year’: Scott Hutchinson’s Outlook for 2023

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