Home builders hope infrastructure cuts will free up skills

Infrastructure projects were able to pay more for subcontractors than builders working to fixed-price residential contracts because the public-sector clients behind civil and social projects generally took the risk of rising costs, Mr Hanan told The Australian Financial Review.

“There are challenges when the subcontractor market that’s playing in residential tends to have fixed-price contracts in construction, versus if you have cost-plus [contracts] – which is often the nature of infrastructure – it can distort how the labour markets and resources allocate themselves,” he said.

“Any opportunity to redirect labour back into the housing sector, from our perspective, is welcome.”

Australia’s state-based infrastructure surge – with many projects started as efforts to stimulate a COVID-hit economy – prompted a warning from the International Monetary Fund last month of overheating in an economy stretched beyond its productive capacity.

The Washington-based IMF said Australia’s $30 billion-a-year spend would likely delay a return of inflation to the Reserve Bank’s targeted 2-to-3 per cent range until early 2026, slightly later than the central bank’s own late-2025 timeline.

But even before the IMF’s announcement, capacity concerns were holding back the housing industry tackling the country’s undersupply of homes that federal government agency Housing Australia – previously the National Housing Finance and Investment Corporation – estimates could total 175,000 by 2027.

“There are definitely capacity constraints,” said Nerida Conisbee, Ray White Group chief economist and the chair of peak body Australian Construction Industry Forum’s Construction Forecasting Council.

“Infrastructure is critical but at the moment the most critical infrastructure has got to be housing.”

‘Key cost drivers’

Even as high borrowing costs have depressed demand for new homes, the residential development sector has flagged the effect of infrastructure.

“Market capacity and labour scarcity are the key construction cost drivers to the end of the decade,” Property Council of Australia chief executive Mike Zorbas said earlier this week.

“Even after landing capital partners and navigating high-friction planning systems the cost and delays in creating homes, commercial and industrial projects will be turbocharged by this historic labour and market capacity scarcity.”

Following the 90-day review that found $32.8 billion worth of cost blowouts nationally, Infrastructure Minister Catherine King on Thursday cut five projects in each of WA and SA, as well as one in ACT and Tasmania.

Mirvac’s Mr Hanan said conditions for residential developers had been getting worse recently, particularly for the so-called finishing trades – electricians, plasterers, painters who come in and finish the work on a completed structure.

Finite pool of resources

“When you got a finite pool of resources, which is skilled labour in construction, and it’s being pulled in multiple directions, and that one of those directions has capability to pay more for that resource, then that is going to create imbalances in the supply of resources into parts of the industry,” he said.

“The residential sector has suffered, probably in recent times as a result of that.”

Housing demand remains weak. The Housing Industry Association on Thursday said new home sales nationally fell 8.1 per cent in October from September and that new home sales across Australia in the three months to October fell by 5.8 per cent compared to the same quarter a year earlier.

Mr Hanan, who attended his first Mirvac AGM as CEO on Thursday, said his company’s sales were doing better than the HIA’s numbers for the industry showed, but declined to give exact numbers.