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Future Of Work Economics Is The Construction Industry Trouble

Future of Work: Economics (Is the construction industry in trouble?)

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Future of Work: Economics (Is the construction industry in trouble?)

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Is the construction industry in trouble?

Australia’s current economic conditions - rising inflation, labour and supply shortages, and extreme weather conditions - are presenting enormous challenges for the construction sector.

Although the industry has always been described as tumultuous, the sector’s performance has certainly been strained due to the global Covid-19 pandemic.Employing around 10% of the working population and contributing to 7.2% of GDP,Australia is heavily reliant on this industry to rebuild and stabilise the country. 

However, in the last 6-12 months - particularly in home building - soaring costs of raw materials and global supply chain issues has caused theconstruction industry to have the highest number of insolvencies in Australia.

The burning question remains - how close are we to a systemic collapse in the construction industry? Where will the damage stop and will it stop? 

In this article, we shed some light on the current issues and how this may affect the future of the sector.

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Insolvencies becoming a real issue

So why is the construction industry in such a state?  

In 2021-2022, the sector recorded the highest number of insolvencies in Australia-  and now accounting for28% of all nationwide insolvencies. Small and large homebuilding companies such as Probuild, Privium, Waterford Homes and Pivotal Homes have gone under in the past year. Earlier in June this year, Metricon managed to narrowly avoid going into liquidation as well. Although a smaller player mightn’t affect things economically on a national level, it could be regionally and locally damaging, leaving many homes unfinished - and a lot of unpaid trades.

Monash University’s Professor Paula Gerbersaid a major factor of insolvency is the reliance on fixed contracts, which locks in the prices before the build starts. This leaves builders unable to turn a profit. 

She explains, “The problem is construction takes a long time, and over that time, prices go up, materials become unavailable.." 

As construction companies start to sell off their assets and go into liquidation, housing prices are being heavily affected. New figures have revealed the cost of building a home has skyrocketed to a whopping $76,000. This pushes thenational average value of new homes over the $400,000mark, at a time when house and land packages were seen as an affordable entry point for first home buyers and families.

What other economic factors are affecting construction?

With other countries also attempting to reinvigorate their economy through boosting construction projects, this places greater strain on the global supply chain.There’s been a sharp increase of the cost of raw materials, such as steel and concrete, which places pressure on margins and profits. 

Supply chain shortages include the slowdown of steel manufacturing in China, as well as timber. Additionally, tariffs of 35 per cent are being imposed on Russian and Belarusian Engineered Wood Products (which comprises of approximately 40 per cent of Australia’s EWP imports). 

The ripple effect has triggered many industries, meaning the supply of goods has decreased and demand is at an all time high. The conflict in Ukraine has significantly increased costs to construction operation costs, with record fuel prices and increased material costs. These rising fuel prices - in particular diesel - means that it costs considerably more to operate cranes, trucks, and other heavy equipment.

To make matters worse, Australia is experiencing a national shortage of truck and forklift drivers. Goods that normally take eight days to ship are now taking up to six weeks to arrive, with shipping containers costing 500 - 600% more.

Are the issues only confined to residential homebuilding?

Commercial and infrastructure projects each have their own set of challenges. 

For example, there are doubts as to whether organisations may move ahead with a new office build, considering many of their employees are working from home.

Cost blow outs are a major concern for large infrastructure projects. Severe delays combined with cost overruns will hamper the government’s ability to accurately time public infrastructure investment. 

Sustained periods of high costs and growing backlogs will exacerbate delays, cost overruns, or project failures. 

And unfortunately this isn’t isolated to new builds. The operations and maintenance of existing infrastructure will alsoexceed budgeted expectations due to overlapping inputs.

 Navigating these challenging times

Disappointingly, with the ongoing delay of supply chain materials for construction, we expect more businesses to collapse. However, with cases of Covid and restrictions decreasing, we should expect to see the shortages of raw materials and resources fall over time. 

We believe Australian manufacturers and wholesalers need to proactively address their vulnerabilities. They can look for way to maximise their opportunities through:

  • improved trade relations

  • grants

  • capital investments or specialised loans

The government can also take an active role by performing capacity assessments. Combined with a greater understanding of future resource requirements, this allows fortargeted investment and policy shifts to alleviate specific supply bottlenecks.

Finally, implementing a holistic approach to tackle the industry’s challenges will enable a stronger framework for industry sustainability and productivity.

About CGC Recruitment

CGC Recruitment is a specialist construction, infrastructure, engineering, and architecture recruitment consultancy. We view our clients as our partners and work closely with them to meet their business needs. We work with some of Australia’s largest construction brands through to specialist SMEs and boutique consultants. We have proven experience delivering permanent, contract and retained recruitment solutions, consistently providing the right candidates for the right roles at the right time.

If you have an active role you’d like to discuss or just want to talk to a specialist consultant, pleasecontact us. Alternatively, you can complete ouronline client formand a member of our team will contact you.