Aus Building Costs on the Rise: Construction Industry Faces Tough Times

Construction costs in Australia are set to increase significantly over the next few years, with experts predicting a jump of more than 30 percent in some cities. This rise is driven by strong demand, government spending, rising wages, and labor shortages, making it increasingly challenging to build affordable housing. The situation is expected to persist for several years, aligning with the Labor government’s goal to build 1.2 million homes by 2030.

Engineering group Arcadis has provided data showing that building costs are anticipated to rise by 28 percent in Perth, 34 percent in Melbourne, and upwards of 39 percent in Sydney between 2023 and 2028. Brisbane is also expected to see costs rise by 34.4 percent, having already experienced the strongest growth this year due to above-inflation wage increases.

The Australian Bureau of Statistics reported a 5.5 percent increase in the total number of dwellings approved in May, which brought the 12-month increase to 14.9 percent. This is still far below the federal government’s target of 240,000 dwellings.

Paul Bidwell, chief executive of Master Builders Queensland, emphasized that there is no immediate relief in sight for rising construction costs until issues with skilled migration are resolved. The shortage of skilled labor continues to put pressure on the industry, exacerbating the already high costs of construction.

KPMG’s chief economist, Brendan Rynne, pointed out that insolvencies, while problematic in terms of interest and interest rates, have a dual impact on the labor market. On one hand, they can help ease the shortage by freeing up labor, but on the other hand, they can worsen the situation by reducing the number of active construction firms.

The compounding effects of these factors create a challenging environment for the construction industry. As wages rise and labor remains scarce, the cost of building homes increases, making it difficult to meet the high demand for affordable housing. Government initiatives to stimulate construction through spending are adding to the demand, but without addressing the root causes of labor shortages and rising wages, these efforts may fall short of their goals.

The Labor government’s ambitious target of building 1.2 million homes by 2030 is a key driver of current construction activity. However, achieving this target will require significant changes to the current landscape, including improvements in skilled migration policies and strategies to manage wage growth effectively.

The rise in construction costs also has broader implications for the economy. As costs increase, the affordability of housing decreases, potentially leading to a housing crisis if supply cannot keep up with demand. This could have a ripple effect, impacting everything from mortgage rates to the overall economic stability of the country.

Efforts to address these challenges are ongoing. Industry stakeholders are calling for more robust policies to support skilled migration and for measures to manage wage inflation. Without these changes, the construction industry may struggle to meet the growing demand for new housing, further exacerbating the affordability crisis.

The current state of the construction industry underscores the need for a multifaceted approach to policy and regulation. By addressing labor shortages, managing wage growth, and balancing demand with sustainable building practices, Australia can work towards stabilizing construction costs and ensuring the availability of affordable housing for its citizens.

The Australian construction industry is facing significant challenges as it grapples with rising costs, labor shortages, and high demand. The path forward will require coordinated efforts from government, industry, and stakeholders to create a sustainable and affordable housing market.

With inputs from a story in The Australian.

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Maria Irene
Maria Irenehttp://ledgerlife.io/
Maria Irene is a multi-faceted journalist with a focus on various domains including Cryptocurrency, NFTs, Real Estate, Energy, and Macroeconomics. With over a year of experience, she has produced an array of video content, news stories, and in-depth analyses. Her journalistic endeavours also involve a detailed exploration of the Australia-India partnership, pinpointing avenues for mutual collaboration. In addition to her work in journalism, Maria crafts easily digestible financial content for a specialised platform, demystifying complex economic theories for the layperson. She holds a strong belief that journalism should go beyond mere reporting; it should instigate meaningful discussions and effect change by spotlighting vital global issues. Committed to enriching public discourse, Maria aims to keep her audience not just well-informed, but also actively engaged across various platforms, encouraging them to partake in crucial global conversations.

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