Skilled labour shortages across Australia and New Zealand create further cost pressure
January 21, 2019.
According to the Rider Levett Bucknall (RLB) 1st Quarter 2019 Oceania Report, shortages of skilled labour continue to put more pressure on construction costs across Australia.
Ewen McDonald, Oceania Chairman of RLB said, ‘A recurrent theme has come to light through tender interviews with head contractors and discussions within the industry. Across RLB’s Oceania offices, availability of skilled construction workers has become an issue at the forefront of people’s minds.’
Workforce struggling with current market demand
Due to the current market demand, the pipeline of building and non-heavy industry engineering work in both Australia and New Zealand is continuing to place pressure on head contractors and subcontractors who are finding it challenging to secure adequate levels of labour for current and future projects.
The construction industry must challenge traditional methods
According to RLB, as the construction workforce, mirroring the total workforce in both countries, has shifted towards a more aged and higher qualified demographic, there are concerns about whether new levels of entrants to the industry will adequately replace the personnel leaving the industry over the next decade.
Ewen continued, ‘The needs of the present, not to mention the future, requires the construction industry to adjust. By implementing new and innovative work methods, potential labour shortages could be mitigated through increased offsite fabrication, embracing the use of technological aids and challenging traditional methods.’
Construction activity in Australia reaches 10-year high
Tender pricing around Australia is feeling the impacts of the continuing strength of the residential sector, increased government spending, industry wide EBA wage increases and material price increases partly resulting from the falling AUD. Construction activity in Australia continues to rise, reaching a ten-year high, in nominal terms, which is adding additional pressure along the supply chain to an already strained industry.
Construction pricing trends around Australia:
As anticipated six months ago, structure trades have become particularly busy and the lack of available resources is becoming apparent. There have been increases in both material supply and labour costs associated with the concrete, reinforcement and formwork trades. Finding joiners to provide pricing on projects remains very difficult.
As a result, annual escalation forecasts for 2019 and beyond see increases above 2018 levels, with annual uplifts of 4.0% for both 2019 and 2020.
Escalation expectations for the Brisbane market have seen significant changes from six months earlier. The slowdown in the apartment sector has been offset by a slowdown in construction completions. As work begins to transition from in-ground works to vertical construction on Queens Wharf and other large projects, there is an expectation that the tendered cost of Tier 1 subcontractor trades will steadily increase, due to the limited number of subcontractors. TPI uplifts for 2019 and 2020 are forecast at 3.0% and 5.1% respectively.
TPI forecasts for Canberra are unchanged from six months earlier. In the short to medium term workload remains positive, but after a sustained level of growth within infrastructure and the related urban renewal projects, it is anticipated that the level of growth will slow towards the end of 2019. Forecast escalation is anticipated to peak in 2018 at 3.5% and gradually fall to 3.2% in 2019 and 3% for 2020.
The Darwin construction market is still fragile, with spare capacity at all levels of the industry, very low levels of private investment and intense competition for the few projects on offer. As the government continues to put out projects to stimulate the market, coupled with defence projects coming on line, escalation forecasts for 2019 and 2020 are above 2018 levels, though still very weak with 0.8% and 1.2% respectively.
With the reduced volume of new projects, the market is experiencing competitive pricing between contractors, subcontractors and suppliers for projects valued at under $50 million. Larger projects, subject to enterprise bargaining agreements, should see labour price increases of 5% per annum. As a result, the general escalation forecast for the region during 2019 has been revised down to 2.5%.
Cost pressures are being seen, particularly in labour and materials that are common to both building and infrastructure projects, such as the cost of concrete, which has risen approximately 20% over the past two years.
These conditions have put significant pressure on tender pricing, which has seen 2018 escalation rise to 4.0%. Looking forward, there is an expectation that restrictive planning conditions, higher interest rates and tighter lending requirements may take their toll, reducing the number of approvals and pipeline of work. As such, escalation forecasts for 2020 remain at 3.5%.
While the market adjusts to improved business conditions and optimism is returning to the economy, forecast escalation for 2019 is 2.5%, unchanged from levels reported six months ago. And as capital expansion occurs within the mining sector, a 3.0% increase in escalation is forecast for 2020.
Factors contributing to price rises include general wage rises, base metal prices such as iron ore, copper and aluminum increasing approximately 10% over the past twelve months and the price of oil steadily increasing since early 2018. The complexity of projects is also placing additional risks on the subcontract market that are being passed on to tender pricing.
With the continued high levels of construction activity in 2019, the issues outlined earlier have resulted in an uplift in escalation forecasts for the coming years.
Townsville’s escalation forecasts are unchanged from the previous edition. The region continues to see competitive rates across most sectors, and timing of upcoming projects may impact rates as major trades may compete for major defence projects and other projects within the pipeline. Escalation of 3.5% is expected for both 2019 and 2020.
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