Report slams ‘obscene cost’ of construction in Victoria

MELBOURNE is truly a global city, second only to New York, according to this global ranking. But it’s not a good thing.

Construction workers on a building site with a CFMEU flag attached to a crane in South Yarra. A new report has found Melbourne construction costs are among the world’s most expensive. Picture David Geraghty/The Australian

EXCLUSIVE

THE Victorian government could build 200 new 24-hour police stations, five new hospitals or 125 new trains for the money wasted on excessively generous construction union wage deals, according to the Institute of Public Affairs.

In a new research paper, the free-market think-tank has found labour costs per square metre in Melbourne are among the highest in the world, second only to New York, as a result of enterprise bargaining agreements in the construction sector.

But the Construction, Forestry, Mining and Energy Union has dismissed the report as “self-serving and misleading propaganda”.

According to the IPA’s analysis, a labourer in the Victorian capital costs approximately $55 per square metre, a carpenter $78 and a site foreman $95, compared with $100 for a labourer, $113 for a carpenter and $169 for a site foreman in New York.

Beijing is by far the cheapest city at $3 for a labourer, $6 for a carpenter and $8 for a site foreman, with Santiago the second cheapest at $7, $10 and $17.

The report compares the “unsustainably high” salaries of construction workers under union EBAs with other professions: $151,794 for an entry-level labourer, $163,825 for a carpenter, $157,739 for a traffic controller, $171,611 for a concrete paver, $149,313 for a bricklayer, $138,741 for a jack hammerman, $167,603 for a crane operator, $177,618 for a line worker and $241,256 for a senior foreman.

In other occupations, employers pay $65,145 for a police constable, $94,580 for a sergeant, $53,783 for an entry-level nurse, $71,198 for a senior nurse, $63,356 for an entry-level teacher, $73,238 for a senior teacher, $55,000-$65,000 for a bookkeeper, $45,000-$55,000 for a receptionist, $70,000-$90,000 for an entry-level accountant and $67,000-$75,000 for an entry-level lawyer.

Source: Impact of the Prohibitive Cost of Building in Victoria, IPA

Source: Impact of the Prohibitive Cost of Building in Victoria, IPA

Source: Impact of the Prohibitive Cost of Building in Victoria, IPA

“Construction costs in Melbourne are more expensive than almost anywhere else in the world, except for places like New York,” said the paper’s author, IPA Adjunct Fellow Gideon Rozner. “The Andrews Government must act to prevent these obscene costs from crippling the Victorian economy.”

Of the $10.9 billion cost of the Melbourne Metro rail project, an estimated $3.27 billion is due to the “cost premium” of the relevant EBA. In addition to police stations, hospitals or trains, that money could be used to build 225 new primary schools or 105 new secondary schools, the paper argues.

“Cost premiums from union EBAs are adding up to 30 per cent to construction costs, including for critical infrastructure projects like roads, schools, hospitals and police stations,” Mr Rozner said.

“This is particularly problematic for government projects. Governments are less price sensitive than private enterprise because they are able to pay for these higher wage bills out of consolidated revenue — typically by raising taxes or incurring larger deficits. Victorian taxpayers deserve value for money.

“Victoria cannot afford to pay a cent more than necessary for these projects at a time when the state is critically short of infrastructure.”

In November, legislation resurrecting the building industry watchdog, the Australian Building and Construction Commission, passed the Senate, but included a two-year transition period before the new Australian Building Code for government-funded projects applies.

In 2014, the newly elected Victorian Andrews Government abolished a similar Victorian Building Code that applied to Victorian Government-backed projects.

“Victorians are paying the price because Daniel Andrews is a divisive Premier more interested in sweetheart deals for his mates than the state’s livability,” a spokesman for the Victorian opposition said.

Mr Rozner said while the reintroduction of the ABCC by the Turnbull Government was a “worthy first step”, the Andrews Government needed to act to reduce costs in the construction industry.

“Its decision to abolish the Victorian Construction Code was shortsighted and it should be reinstated,” he said. “The Victorian Government needs to read the writing on the wall, adopt the principles of the new Australian Code and allow some of these important projects to be built at a more affordable cost.”

A spokesman for the CFMEU said: “This self-serving and misleading propaganda, written by a former Liberal staffer on behalf of the Liberal Party’s own think tank, isn’t worthy of a serious response from a union that is actually focused on keeping construction workers safe while they’re busy building this city.”

A spokesman for the Victorian government said: “The IPA and Turnbull Government have failed to prove any link between their politically motivated code and running a successful economy.

“The Victorian economy is the most successful in Australia and we are proud of the thousands of jobs being generated building Metro Tunnel, removing level crossings and our other major transport projects.

“The wages and conditions of Victorian construction workers are a matter between the employers and the employees.”

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