Significant real wage rises, combined with sluggish productivity growth are driving up construction costs, leading to a reduction in the amount of infrastructure that governments can afford to build, says Australian Constructors Association CEO Jon Davies.
The annual construction industry market sentiment report, released by Arcadis and the Australian Constructors Association (ACA), reveals increasing concerns about the impact of political decisions on project pipelines and the significant effects of the current industrial relations environment on construction costs.
The higher cost of labour and stagnation in productivity growth are making commercial developments financially unviable, Davies says.
“The disparity of wages between government and private sector projects has left the private sector unable to complete with a staggering 81% of respondents reporting either stagnation or decline in the residential construction sector," he says.
The report also raises concerns over the declining market sentiment caused by government cutbacks, commercial sector uncertainty, and delayed commencement of new energy initiatives.
"Amidst 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,” Matthew Mackey, executive director – cost & commercial management at Arcadis says.
“Risk allocations including those associated with the changing IR environment are significant impediments to business viability with nearly three-quarters of respondents agreeing that current contracts do not adequately and fairly allocate risk between contracting parties – a similar result to last year’s survey,” says Mackey.
According to Davies, project planning needs to be improved and construction costs need to be lowered to ensure the country can afford the infrastructure it needs.
“We need to double down on collaboration to solve project challenges together and we need to improve industry productivity as a matter of urgency.”
The report also identified Energy and Power (81%), Water (71%) and Defence (67%) as the hottest sectors across the construction industry.
Download the Report.
Image source: Australian Constructors Association
