Labour will become the main driver of building costs

Perth will lead the country for construction cost growth this year as labour shortages increasingly overtake materials costs as the main driver of inflation, consultancy Arcadis says in its latest forecast.

Building tender prices in the WA capital will rise up to 7 per cent this calendar year, more than the forecast increases of up to 5 per cent in Sydney, Brisbane and Darwin, the Amsterdam-based company says in its Australia Construction Market View, Summer 2022 report.

While energy and commodity prices – which have a direct effect on materials such as steel, timber and concrete – were influencing costs in the short term, those US dollar-denominated costs were something over which Australia had little control.

The bigger influence on pricing over the next decade – which the country could influence by smoother and more efficient immigration policies – was labour costs, Arcadis said.

“Materials cost increases have been driving the cost of construction,” said Matthew Mackey, Arcadis’ Australia Pacific executive director of cost and commercial Management.

“We think that’s going to settle down later this year. Rising labour costs are going to become the main issue.”

Perth, like Brisbane, suffered country-leading tender price inflation over 12 per cent last year, largely due to pandemic border restrictions that impeded the flow of workers and materials.

The reopening of interstate borders will ease much of this pressure, but as large-scale infrastructure projects ramp up in this country – at the same time as they do in countries such as the UK and US – Australia will be competing hard for skilled workers with the rest of the world, Mr Mackey said.

Perth is facing tender price rises of 5-7 per cent this calendar year while Brisbane is looking at 4-5 per cent growth, equal to Sydney.

Darwin is in for a 3-5 per cent increase, Melbourne 3-4 per cent and Adelaide and Canberra a 2-3 per cent rise.

Different dynamics are at play in the capitals of the two resource-heavy states, however. In Perth, the pick-up in activity over the past 12 months was driving up demand for services and workers and contractors were already picking and choosing jobs, he said.

Brisbane, where activity levels were not so high, was hampered by Queensland’s “very, very shallow” contractor base – which had taken a further hit from the collapse of commercial builder Condev last month, Mr Mackey said.

“When have those contractors collapse, there’s an impact on the trades as well,” he said.

“You have fewer contractors doing delivery.”

Builders are racing to get projects done before costs rise further. Rich List developer Max Beck last week told The Australian Financial Review his company opted to take on itself the construction work left undone at their Caulfield Village project in Melbourne when joint venture partner Probuild collapsed because the delays and extra costs associated with finding another builder would push the overall price much higher.

“The only way you can get them on site would be on a cost plus basis, you see, otherwise, they’d have to go away and price all the work, they’d be four weeks gone doing that,” Mr Beck said.

“And then they’d load everything up.”

Australia’s economy – more affected by global supply chains and economies in the pandemic than at any time since the GFC 20 years ago – needed to improve its ability to bring skilled workers into the country, said Mr Mackey, who is currently trying to get a visa for a person in the UK and has been told the process could take anything from two weeks to six months.

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