Inside the Productivity Challenges Facing The Construction Industry

Australia’s construction industry is in the grips of a pressing productivity problem. Productivity in the building industry has seen a decline in seven of the last nine years. In the last decade, productivity has decreased by 18%. Failure to address productivity in the construction industry affects us all. Reduced productivity means that projects are delayed or not delivered at all. This leads to higher costs for consumers and governments. Reduced productivity is also crippling many construction businesses, with insolvencies at a record high.

So what are the key factors affecting productivity in the construction industry and how can this issue be addressed?

Thanks to Master Builders Australia and Realestate.com.au, we explore issues with productivity in construction and how these can be addressed.

Labour shortages are the biggest source of cost pressure on the building and construction industry. This has a significant impact on the final cost and timeline of construction projects. Without more workers, the Federal Government’s ambitious target to build 1.2 million new homes by 2029 is unlikely to be met. 66 percent of survey respondents said that finding enough workers was the biggest issue facing the construction industry right now.  While job vacancy rates have historically been lower than other industries, this is no longer the case. Many construction companies have had to reduce the amount of projects they are taking on as they cannot find the staff to complete them.

Excessive material price growth has also significantly hampered productivity in the construction industry. During the COVID pandemic, building materials inflation was the highest it has been since the 1970s. While this has since eased, price pressures remain for concrete, cement and ceramic products. Many construction companies operate on fixed-price contracts. As the cost of materials goes up, profit margins go down. Therefore, many construction businesses have been forced to curtail the size of their operations.

Industrial relations reforms are another area that has limited productivity. The Albanese Government introduced the Same Jobs Better Pay Bill. Under this legislation, employers are required to pay workers the same amount for performing the same job. This legislation has proven to be of great concern to many in the construction industry.  This is because it means a tradie starting out must be paid the same as someone who has worked in the industry for decades. This disincentivises increasing the wages of more experienced workers. The government has also made several other changes, including introducing multi-employer bargaining and abolishing the Australian Building & Construction Commission. These changes increase uncertainty, legal risks and costs for businesses and consumers.

How to address productivity in the construction industry

Addressing productivity in Australia isn’t easy, as many big-ticket productivity reforms have already been completed. However, there is still more that can be done.

For example, more could be invested in technology to maximise efficiency.

Migration can play an important role in increasing the construction workforce. Visas for skilled international workers should be fast-tracked.

However, the industry should also maximise the workers it already has.

Prefabrication is one way to improve productivity in the construction industry. Building houses in factories and then installing them on-site can reduce building times and cut wastage.

Governments can also play a significant role in enhancing productivity. They must ensure that laws operate efficiently and consistently. Industrial relations legislation should be designed to ensure it is not detrimental to industries such as construction.

Addressing productivity in the construction sector won’t just help those in the industry; it will also benefit the broader Australian population and economy as well.

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