Can’t get a tradie? The CFMEU’s stranglehold on major projects is choking all of us

Across Australia we face constraints on new home building supply and the ability of households to undertake major renovations. The most prominent example is Melbourne.

Many potential new home buyers are stepping back from building a new home as a dire shortage of skilled labour contributes to hefty delays in project start times and significant increases in the cost of a final project. The same can be said for large-scale renovation jobs such as ground floor and second storey extensions, which should form an important component of Victoria’s economic activity.

The Victorian government’s Big Build projects is slowing down residential building and increasing the cost of labour.Credit: Jason South

These issues in Victoria are being exacerbated not only by Melbourne’s Big Build infrastructure program including the Suburban Rail Link, but also by the nefarious and alleged criminal activities of the construction arm of the CFMEU.

The union’s stranglehold on the state’s major road and rail projects is adversely affecting costs, efficiency, quality and consequently productivity growth, while contributing to squeezing out the availability of skilled labour for new home building and renovation projects.

The activities of the CFMEU reek like a street that hasn’t had its rubbish emptied for a month. This has had a cascading impact on construction all the way down the chain to residential building. The alleged criminal behaviour of the CFMEU in aggressively placing workers on non-residential building sites has debased the quality of skilled labourers on these sites and has had a negative impact on the confidence of businesses, workers, and households. This in turn is hampering the prospect of real skilled labourers re-entering the residential building sector.

The situation is also increasing costs for households who, for example, simply need a plumber for a new home building or renovation job. In Melbourne we can consider a range of, say, $100 to $200 per hour, excluding any charge-out rate. If you can potentially earn 15+ per cent on top of that rate on a commercial or engineering construction site then why would you bother with residential?

The consequence is that there is a reduced pool of skilled labour focusing on the residential sector. Fewer plumbers to go around inevitably means demand is outpacing supply and hence residential plumbers can charge higher rates. Clearly it’s not that simple anywhere and everywhere, but this premise is firmly in play in Melbourne.

The Big Build projects, including road widenings, highway upgrades, intersections and new bridges, is a massive policy commitment. The Suburban Rail Loop alone is estimated to cost $134 billion to build, but the amount will come in higher than that. Infrastructure projects are sucking the labour market dry.

Skilled labour expertise doesn’t always easily and directly transfer across engineering, non-residential and residential projects, yet many skills do. There simply isn’t enough skilled labour to cover the gaps across these three sectors of construction. This situation is not solely attributable to a lack of skilled labour, but it forms a substantial part of it.

It is laudable that the Victorian government is focused on building infrastructure for the decades ahead to accommodate Melbourne’s growing population. Right now, though, this narrow policy focus is restricting the new housing and renovations activity which Melbourne’s existing population has a demand for.

It is counter-intuitive that the Victorian government’s focus on their Big Build and SRL policy programs is crowding out the ability of Melburnians to build detached houses and townhouse dwellings.

As of the March 2024 quarter, new dwelling commencements in Victoria are running at an annual level of 51,512. For 2024/25 my estimate for the underlying requirement for new dwellings is 61,345. That means we are running into a short-term shortfall of 9833 dwellings. That is presuming that new dwelling commencements have bottomed, which they probably haven’t. So, we already confront a large gap in what will be built compared to what needs to be constructed to accommodate the state’s (especially Melbourne’s) current population.

It is one thing to advance infrastructure investment to accommodate Melbourne’s growing population in decades to come. However, if contemporary households are facing increased costs in trying to build a new home or renovate an existing one, then clearly the Victorian government needs to urgently recalibrate its policy settings to create better circumstances, balancing a necessary long-term goal with contemporary conditions. Surely that is politics and economics 101, but these days governments of all sides and sizes aren’t very good at recognising such a fundamental point.

The fall-out is that Melbourne households are being unnecessarily constrained in their ability to overcome the existing housing affordability crisis.

There are also historical and generic barricades to housing activity that recent government policies aren’t sufficiently addressing to confront a lack of new housing supply. These include a lack of land supply and a lack of availability of affordable, serviceable land; high infrastructure charges and other costs levied on residential land development; the cascading impact of GST being levied on new housing development and construction; continued delays in planning approvals where Victoria’s actions don’t match the progress required; and red and green tape that has increased rather than declined in recent years.

Business groups are correct in calling for an inquiry into the CFMEU’s alleged criminal activities and the reinstatement of a “cop on the watch” such as the defunct Australian Building and Construction Commission. However, through three royal commissions and the ins and outs of the ABCC, nobody succeeded in bringing all the pieces of the CFMEU jigsaw puzzle together. The appointment of an administrator to the CFMEU is like putting a Band-Aid on a serious wound. We need a fresh organisation that can operate more effectively in turning around the thuggish nature of what has recently been highlighted. That will never happen under a Labor government, and didn’t occur under a Coalition government even with the ABCC. But it is clearly necessary. The federal Labor government will be forced to confront the issue with a much harder line and legislation will surely be required.

The bottom line is that the Victorian government is looking to the future while ignoring the present. That needs to change.

Harley Dale is an independent economist and the former chief economist of Housing Industry Association.

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