[+] Smoother Waters Ahead as Construction Capacity Starts New Cycle

It is time to sweep up from the aftermath of the massive construction industry tsunami and build again. The ignored phone calls, abandoned projects, sleepless nights and utter dismay are fading as experts say the crunch on construction capacity is over. This is a huge turn around from December, and could be the end of the lull of vertical applications and lengthy delays. Developers can revisit these projects, pick up the phone and find someone to start building. But how—and why? Build Skills executive director of research and planning Robert Sobyra says there are three factors in play. “The cost escalation, the price inflation that we saw is completely back to normal,” Sobyra says. “That doesn’t mean prices are falling, it just means the rate of price growth is back to its normal level. “Builders, trades and developers can have confidence in the numbers they are putting in their feasibility. Sobyra says that secondly, the big spike in insolvencies had come off quite steeply. “In the latest data from ASIC we’re actually back to trend… to just prior to what it was before the pandemic,” Sobyra says. ▲ Build Skills executive director of research and planning Robert Sobyra looks at strategies for solving longer term work shortages or challenges. “Thirdly, on the labour shortage side of things—which has been the main complaint—even that is starting to loosen up.” Part of the evidence, Sobrya says, is one of his favourite data sets—the payroll job index. “The index peaked about 12 months ago, then builders started to reduce their headcount,” Sobyra says. “That means builders and subcontractors are releasing capacity into the market, so they’re actually shrinking. “Whether it’s labour, whether it’s things loosening up with companies entering and exiting the industry or if it’s materials, it’s starting to look a lot more like 2019 than 2022.” Kane Construction director David Rutter describes what happened in the past few years as a series of explosions that led to a huge crater needing to be filled in the construction sector. “There were a whole lot of forces which came together around Covid and the explosion post-Covid,” Rutter says. “The restriction on immigration during Covid ... that exploded afterwards. “The incentives given by government for housing because they perceived that would fall ... and then of course exploded. “Then people were working from home and needed bigger spaces—and that exploded. “What we noticed at the start of last year was probably the worst conditions for commercial buildings, certainly in my 30 years of building.” ▲ Kane Constructions worked on the $60-million design and construction contract for a 29-storey student tower in Melbourne for Iglu during 2023. However, Rutter says, it is all cyclical and always has been. “I reckon if you went back 100 years and read articles about the construction industry you’d probably find a period where they asked ‘how can we fix the supply?’. It’s a forever thing,” Rutter says. “They’re all forces that just affect where we are in the cycle.” The top 20 construction company director says that we are entering a new normal—but normal is a relative thing. “It’s probably less volatile, people can now price a job and have a few months to think about it without the prices going crazy. Subcontractors are sort of interested in future pipelines,” Rutter says. “We’re optimistic about future work coming up—it’s certainly easing. “We turned down an enormous amount of opportunity because we simply did not have the capacity to take it on. “Now we are turning down a lot less. “We are interested again and so are our trades.” ▲ Kane Construction director David Rutter: Optimistic about future work. Rutter says while prices aren’t going to go down, developers can now do feasibility on pricing without having to write in massive price escalations if it’s six or 12 months out. “Instead of putting 12 per cent escalation premiums on the job they might wind it back to 6 per cent,” he says Sobyra says the construction cycle backwash will last for another 12 to 18 months and that it is time to think about what’s next. “We will be back to normal I suspect, but normal doesn’t mean heaps of capacity or that we will be in some sort of utopia, it just means the craziness of the pandemic is over,” he says. “If we take a really long-term view, to think about the sheer amount of stuff the community expects to be built, the renewables transition and resolving the housing shortage. “That requires a permanent lift in the level of supply of new dwellings compared to prior to the pandemic. “All of this adds up needing way more people working in the industry.” Sobrya says attracting new workers was crucial. “If we can convince a larger share of the labour force to work in our industry, that's great, the problem is every industry is trying to do that.” ▲ Construction work in Australia took a big hit during the pandemic but it appears things are starting to turn around. Migration and younger workers are part of the solution, says Rutter, who is a board member of the Australian Industry Trade College for students in years 10 to 12. “There’s been a long push for universities in the past 15 or 20 years. I think we need to encourage governments and institutions to focus on getting people into vocational training,” he says. “There’s still a bit of a cultural issue or stigma around trades training that I think is wrong and we need to improve that. Rutter says the right migration policy settings were also needed. “Skilled migration is obviously how we built this country and is still important to us,” he says. Sobyra says technology will also play a role in planning and increasing accessibility to grow the workforce and increase its potential. “The only sustainable path out of this conundrum is productivity growth—finding ways to produce more buildings with fewer people,” he says. 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[+] Smoother Waters Ahead as Construction Capacity Starts New Cycle

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