How can Australia's dire construction labour shortage be solved?

The Australian building industry finds itself in a catch-22 situation as it seeks to attract workers and meet the housing supply needs of the country.

The more it throws money at scarce labour and escalating materials costs, the more difficult it becomes to build the homes and commercial properties that are in high demand.

It’s an existential crisis that was further underlined this week with the collapse of more building companies, as the industry dominoes continue to fall.

Solido Builders in Queensland, specialists in luxury homes, became the latest casualty in the construction crisis, following on within days of Gold Coast-based Pivotal Homes.

Tellingly, Pivotal’s owner Michael Irwin pointed the finger at “gouging” tradies he claimed were putting up their prices as supply costs rose, while Solido owner John Hattink said labour costs were largely to blame.

The Australian Bureau of Statistics this week released data showing detached house approvals increased by 1.4 per cent in the three months to April 2022 to be 16.8 per cent higher than the same three months in 2019, while renovations approvals jumped by 6.6 per cent in April to be up over the last 18 months by 42.6 per cent on pre-pandemic levels.

Clearly the work is there to keep builders busy but only if they can survive the crunch caused by soaring labour costs, delays caused by tradie shortages and overinflated material costs.

Australian Property Investor Magazine spoke to an assortment of industry professionals, from builders and architects, to industry advisory bodies and technology specialists, to determine how the seemingly intractable problem of labour shortages could be solved.

Not chicken and egg

The Property Council recently outlined a series of key measures it felt would address labour shortages.

It’s first priority was targeted migration growth and removing barriers to migration, to rebuild an undermanned workforce.

Sandra Brewer, WA Executive Director at Property Council of Australia, said the catch-22 situation could be resolved.

“Previous periods of rapid economic growth have demonstrated, despite claims to the contrary, that housing shortages and workforce shortages do not create a chicken and egg scenario.

“Property markets can provide for workers even in highly constrained conditions, however, elevated delivery of property cannot occur without the additional workforce.

“As such, elevated migration should precede housing supply.”

Even if we got the land for free, (there are) sites and developments that would still not be viable.”

- Luke Parker, Director of OP Properties

The problem now, however, is that Australia’s building labour shortages are not unique, with the US, UK, Ireland and mainland Europe all experiencing a similar strain on their building sector workforces.

As architect Kylee Schoonens, Director of Fratelle, explained, “In the past, we were able to draw workers from countries that are no longer such rich sources of skilled labour.

“Gone are the days when we could offer good salaries to workers from New Zealand and Ireland to fill our gaps.

“With the pandemic and other economic dramas to contend with, countries around the world resorted to supporting their economies through large-scale building and infrastructure projects that have absorbed the workers Australia might once have called upon,” Ms Schoonens said.

Ms Brewer added that the pause in international immigration had also led to the states competing among themselves for the limited talent available.

“The likely outcome of skills shortages is wage inflation, driving up the cost of projects and leading to the private and public sectors competing for workers,” she said.

Migration and education

Providing a sense of just how thin the margins were for many builders, a Perth-based company told API Magazine that free prime land would sometimes not even be viable for developers.

Luke Parker, Director of OP Properties, said commercial construction costs escalated between 20 per cent to 40 per cent in the second half of 2021.

“Price escalation has resulted in new projects being deferred indefinitely until the market rebalances,” he said.

Research conducted by Property Council WA this year confirmed that about 30 per cent of the entire apartment pipeline for WA was on hold in the middle of a housing crisis. It is a situation mirrored around the country.

“As an example of this in practice, we conducted acquisition feasibility studies on multiple apartment sites around Perth late last year and early this year, and even if we hypothetically got the land for free the sites and developments would still not be viable.”  

He said the states and federal government each had a role to play in resolving this crisis.

“At a federal level it would be good to see a targeted migration policy whereby if an employer could prove they have genuinely advertised and been unable to fill a position with anyone living in the country, then they should be approved for a fast-tracked temporary skilled visa.

At a state level, he said more needs to be done to unwind damaging and inefficient policies like the foreign buyer surcharge.

“Cutting red tape and streamlining government agency processes is not easy, and good work is being done in this space but more needs to happen.

“As an example, it is taking 12 to 18 months for the state power utility to procure a power transformer, so we now have buildings being built and unable to connect to grid power for six months post-completion.

“There are no easy solutions to these sorts of bottlenecks, but as developers and builders, it’s just another example of the volatility and unknowns in supply chains at the moment that are discouraging investment into new projects.”

Mark Kepplinger, Director of project management business Encon, said the onus was on government, with the private sector already straining to survive.

“Immigration quotas being raised would definitely assist and is a big factor we are missing at present, while the future of the industry would be better protected with a greater emphasis on training the next generation of tradespeople,” he said.

Speaking to the media on Wednesday (31 May) CEO of the Australian Chamber of Commerce and Industry, Andrew McKellar, said the new Labor government needed to be looking at three main areas to overcome what he described as the “most severe shortage of labour in 50 years.”

He cited investment in vocational education and training and lifting the target for skilled migrants from its current 160,000 per year to 200,000 for the next couple of years to make up for the years of immigration lost to the pandemic.

“Without an expanded skilled immigration program, the reality is nothing else is going to shift the needle as quickly as is required for the Australian economy in the short term.

“For the long term, we still need to be investing in skills and training but migration has to be on the table quickly.”

Technological response lacking

While the industry looked to government to introduce policies that might allay the construction industry labour crunch, digital transformation was seen as one way the private sector could improve productivity.

Traditionally, the Australian construction industry has been the furthest behind in digital implementation, ranking the second-least digitised sector in the world in 2016. However, more recent studies have shown that the Australian construction sector is starting to make the switch, with nearly 40 percent of companies planning to establish a digital transformation roadmap.

Paul Nunn, National Building Information Modelling Manager at national commercial construction company Hansen Yuncken, said that while there are signs of improvement within the industry, there is still a long way to go.

“From supply shortages to staff absenteeism, the pandemic has shown that the industry can no longer lag behind when it comes to the adoption of digital innovation.

“In construction, given the challenges of connecting vast volumes of data and people, our focus of this change is on connection – connecting people, processes, data, workflows, and project phases.

“Integrated technologies save time and money and improve project efficiency and safety by allowing the project team to easily collaborate and share information, whether they are in the office or out in the field.”

He cited the use of drone technology as a technology that slashed $20 million off the budget of a project at University of Queensland.

“Drone deployment can reduce the need for constant on-site visits, using cloud-based analytics to capture real-time footage that can be viewed directly from the user’s computer and shared through our cloud-based project collaboration and management system.”

While cloud technology was making waves throughout the pandemic, Mr Nunn pointed out that artificial intelligence (AI) was also key to maintaining operations during this time.

“AI-based technology can help project managers effectively map sites, sharing real time information with stakeholders and clients from projects in regional areas or hard to travel locations.

“3D helmet cameras are a relatively new technology, which is changing the nature of data available on projects daily and for historical reference.”

While Australia has struggled to keep up with global technological updates, Mr Nunn said there is a raft of innovative developments set to reinvent Australia’s construction industry soon.