Surging Wages, Stalled Productivity Strain Construction Sector

Australian Constructors Association

The annual construction industry market sentiment report, released by Arcadis and the Australian Constructors Association (ACA), reveals increasing concerns about the impact of political decisions on project pipelines and the significant effects of the current industrial relations environment on construction costs.

ACA CEO Jon Davies said that significant real wage rises, combined with stagnant productivity growth, are major factors driving up construction costs, which in turn are reducing the amount of infrastructure that governments can afford to build.

"Higher labour costs and stagnating productivity growth are also diminishing the financial viability of commercial developments," said Mr Davies.

"The disparity of wages between government and private sector projects has left the private sector unable to complete with a staggering 81% of respondents reporting either stagnation or decline in the residential construction sector."

The report also raises concerns over the declining market sentiment caused by government cut backs, commercial sector uncertainty and delayed commencement of new energy initiatives.

Matthew Mackey, Executive Director – Cost & Commercial Management at Arcadis said "Amidst the post-pandemic recovery, Australia's construction sector continues to grapple with political turbulence and industrial strife, escalating costs and stifling productivity, which is threatening the very viability of projects and businesses."

"Risk allocations including those associated with the changing IR environment are significant impediments to business viability with nearly three-quarters of respondents agreeing that current contracts do not adequately and fairly allocate risk between contracting parties – a similar result to last year's survey," said Mr Mackey.

Mr Davies said, "We can't afford to continue with business as usual; project planning needs to be improved and construction costs need to be lowered to ensure the country can afford the infrastructure it needs.

"We need to double down on collaboration to solve project challenges together and we need to improve industry productivity as a matter of urgency."

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