The Treasurer has ‘reprofiled’ the infrastructure pipeline - will it work?

By Peter Colacino

This week’s federal budget has reduced spending on infrastructure, a notion that would have been unthinkable only 12 months ago. 

The expected record $65.8 billion over four years in infrastructure committed by the Morrison government in its pre-election budget has been reduced to $61.3 billion, up from $56.9 billion in the FY2021-22.

The political courage required to make this change, especially from a prime minister who has staked his credentials on infrastructure, should be commended.

It’s a necessary lifeline for a building and construction sector that is overheated and struggling to deliver what has long been promised. 

The reality of economic and market conditions, from elevated construction activity to shortages of labour, and persistent supply chain disruptions have created a perfect storm of conditions that are severely hampering the ability of the industry to deliver on government commitments.

While the spend on new infrastructure has been moderated, it still represents a record commitment to infrastructure spending at a time that state and territory governments are delaying or “re-profiling” existing commitments.

Against the record spending on “hard” economic infrastructure, the softer side of the sector, housing, education and health, has often struggled for attention. 

In response, the Albanese government is pursuing a massive investment in affordable housing with a target of 1 million houses over the five years from 2024. This investment is equal to the total number of houses built in Australia over the past five years.

There is little doubt Australia needs an expansion of social infrastructure, including fit-for-purpose social and affordable housing. The Australian Housing and Urban Research Institute has warned Australia is short 727,300 social housing properties to 2036.

However, the massive commitment in public infrastructure, and this substantial commitment to affordable housing is likely to accentuate the current pressure on access to skills and materials, with  resultant material price escalation and delays.

The impact of strong public investment in construction, building material escalation and higher interest rates, means the opportunity for the private housing market will be even smaller.

Infrastructure Australia’s market capacity research shows that at its peak in 2023, building and construction will represent more than 20 per cent of the Australian economy. This is up from the average of 9 per cent.

Australia’s significant building and construction pipeline is an important driver of economic activity, and outstrips the UK (6 per cent) and US (4 per cent) in terms of share of the economy. 

However, it is also contributing to inflation, which is at its highest since 1990.  

The acceleration of global spending on building and construction is leading to labour constrains in Australia and abroad. For instance, the United States Chamber of Commerce, has flagged more than 90 per cent of US contractors are concerned about labour shortages with 57 per cent experiencing them today. Shortages of structural steel, prefabricate concrete products and building timber also persist.

Whether a train station, a hospital or a house – every built project places pressure on demand for a series of common materials and skills, from concrete to tilers. 

While wide-ranging change is required in the industry to adjust to these elevated levels of activity. Priority must be given to reducing waste, incorporating new materials and changing how projects are designed and contracted.

The NSW Infrastructure Minister, Rob Stokes, recently flagged that breaking down the overly risk-adverse “compliance culture” is critical. 

As Stokes said, our conservative design standards mean we are putting more concrete and steel into roads and bridges and railways than anyone else in the world. 

In addition to this demand, as much as 30 per cent of all building materials delivered to a typical construction site can end up as waste. 

This waste and gold-plating further entrench the overheated market. It also raises the bar for the sector to achieve net zero.

An overstretched industry, poorly resourced and facing razor thin margins, is not an industry best placed to support innovation. 

A critical step for government must be to better coordinate spending between the engineering, building and construction markets. This should include providing detailed information on the industry on potential future requirements and then a greater opportunity for industry to innovate in the design of projects and to support transition to new practices and delivery methodologies.

This will require government to give greater flexibility to industry to be more innovative in design and the move away from the notion that bigger is better, both in terms of spending and design.

We need to move to a more coordinated approach for the selection, tendering and delivery of major projects if communities are to feel the full benefits of this substantial infrastructure investment.

This article was originally published by The Fifth Estate.