Not a day goes by without a litany of complaints or frustrations with construction projects:
- Ever increasing delays in project completion
- Ever increasing cost overruns
- Another housing construction firm goes under
- Housing shortages
- Failure to even start big infrastructure projects
While we can’t ignore the many complaints, they do hide some important facts:
- The Australian construction industry generated $173 billion in the year ending June 2024 and represents about 10% of GDP.
- The latest data indicates that the industry employed 1,326,000 people in 2023 – the third biggest employer in Australia (after health care and retail).
In other words, no matter how the industry is viewed, it is vital to Australia’s economy.
If we listen to at least some of the experts, the major problems besetting the industry are:
- A major skills shortage
- Rising materials costs
- The cyclical nature of construction.
With a major housing shortage, a growing population and many large infrastructure projects in the pipeline, you’d think we could resolve these types of problems. But these things are never as simple as they may appear.
THE MAJOR SKILLS SHORTAGE:
How did we even get to a position where this is an issue? Well, this is an issue that has been building for many years – and we just haven’t been paying attention (or so it would seem). We have had, and continue to have:
- An aging workforce. As many skilled construction workers approach retirement, there are simply not enough new entrants to replace them.
- The shortfall in new entrants comes from a lack of training and apprenticeships.
- One reason for this is that of perception. Our society glamorises careers in tech, finance, and law while making vocational training appear unimportant. Our kids are led to believe that a four-year degree is far more desirable than any vocational training – even if they are not academically inclined.
- Consequently, funding for vocational training courses declines.
- Then to make matters worse, a portion of the population believes immigration should be cut back, which often means cutting the people with vocational skills.
The unfortunate result of these things often means that employers are forced to employ un- or under-qualified people. This, in turn, erodes quality while driving up costs and causing project delays. These are not new problems – they have been happening over many years now.
RISING MATERIALS COSTS:
The usual explanation given says that the surge in demand for construction materials has been driven by a booming housing market, infrastructure projects, and renovations during the years of low interest rates. This heightened demand has outpaced supply. Looking for causes is, as usual, not straightforward. Some of them are:
Raw material shortages.
There has been a shortage of key items such as steel. To add fuel to the fire, things like the Russia-Ukraine war have made matters worse. It is estimated that these two countries account for 10% of global steel trade. Apparently, increasing government restrictions and health protocols have exacerbated the problems. It is also claimed that work stoppages and decreased productivity experienced by many producers add further to the problems.
Rising energy costs.
As everyone is aware, energy prices have increased significantly in recent years. Once again the Russian invasion of Ukraine is a significant contributor to these increased costs. The main impact of these increases has been on transport and distributions costs for construction materials.
Supply chain disruptions.
The Covid-19 crisis caused major disruptions in all supply chains and is still having an impact. Supply restrictions always increase prices, and severe and unstable supply restrictions severely increase prices.
Another impediment to supply chains has been the increase in demand for wood and the inability of the market to meet this demand. Shipping bottlenecks and the lack of storage containers have made matters worse.
Environmental factors.
One of the causes of the shortage of wood has been the ever-increasing concern about ensuring that wood is sourced responsibly. In addition, changing weather patterns leading to forest fires in some places and flooding in others have complicated supply chains.
THE MANAGEMENT CONCERNS:
The media always blames poor planning, forecasting, and budgeting for construction delays and company failures. While such claims have some truth in them, they simplify very complex problems.
Managing a large project, or multiple small ones, has always taxed the skills of the best managers. All the above issues have meant that management skills have become even more important, and finding people with these skills is a part of the skills shortage.
As quickly becomes obvious, skills shortages in construction are far-reaching – the obvious ones being the project delays, cost overruns, and failing companies. But they also impact inflation, interest rates, and overall economic health.
Tackling the challenges of the construction industry will not only take time, but it will also take a change in society’s perceptions. Vocational training and suitably skilled tradespeople are essential to our economy. Not only do we not want everyone to be topflight tech specialists, or financial experts, or even lawyers, but also not everyone is suited to traditional university education. Let everyone excel in their own areas of capability.
Unfortunately, it looks like the construction industry’s challenges will be with us for a while yet.
