Crisis in construction weighs on our builders

The current state of the construction industry should come as no surprise given the neglect over the past decade from many quarters, with our builders bearing the brunt.

This has not happened overnight. To provide some perspective, industry revenue last year, including repair and maintenance, amounted to just on $300bn, a 3 per cent increase on the previous year, and is forecast to do the same this year.

The cost of construction over this period increased by 10 per cent, with the 7 per cent gap absorbed by the builders for key reasons and in good faith.

EBIT to sales for builders at best are 1 to 5 per cent (average of 3 per cent), with suppliers scooping the profit pool at 15 to 20 per cent and all we need do is view the annual reports of the publicly listed suppliers.

On a global scale, the cost of Australia’s buildings fell as indexed by an international report by Arcadis (titled International Construction Costs 2022), with all Australian capital city costs falling relative to other countries.

Our buildings are too cheap, for no reason. This is at the cost of our builders, their families and the broader community.

The much maligned construction industry, Australia’s second largest employer in real terms at 1.3 million workers (10 per cent), is also among the top three contributors to Australia’s GDP and vital to Australia’s social and economic recovery.

Yet the procurement practices of a significant number of public and private investors and developers encourages a race to the bottom, with lowest price the goal.

This places the builders in a compromising position, having to sacrifice quality and a specified brand for a cheaper imported substitute.

This was raised this at the federal level toward the end of 2021 and, while the platitudes were forthcoming, absolutely no call to action.

Government-funded procurement was based on the lowest price and not the best value.

Building to Passivhaus standards and not Australian standards (refer to the ice block experiment, Martin Place) demonstrated benefits of higher quality along with a positive payback.

The Albanese government has shown little appetite for improving the industry and the livelihood of our builders that are vital to Australia’s social and economic recovery.

My conversation at federal level led to a solution that could bring another $15bn into the economy, increase margins for builders, employ another 500,000 people and, importantly, increase household incomes for 10 per cent of Australia’s workforce.

Australia’s diminishing sovereign capability (local manufacturing) was exposed at the onset of the pandemic as the industry shut down due to the closure of overseas factories. A number of these factories, such as those supplying commercial aluminium-framed windows (80 per cent of supply), are manufactured with the use (80 to 100 per cent) of coal-fired power.

While this may be another conversation, be mindful that the construction industry contributes around 38 per cent of Australia’s carbon emissions, let alone the building up of embodied carbon in buildings.

The $300bn of industry revenue is roughly accounted for by 50 per cent labour and 50 per cent materials give or take a couple of percentage points.

Of the $150bn accounted for by product and materials, at least 20 per cent is imported (about $30bn) from cheaper sources, with at least half of that amount capable of being supplied locally with investment in building the capacity of established local suppliers using modern manufacturing techniques and technology.

Increasing local capacity and throughput also improves cost effectiveness, response times, lowers minimum order quantities and stock holdings (working capital) and you can return faulty product.

The construction industry and the builders, as professionals of the highest calibre, are intent on improving the social and economic welfare of the people who work, live, learn and play in our builders, yet are hamstrung by the factors as referred.

Geoff Dart is executive director for the Australian Institute of Building