As many markets grapple with unbalanced recoveries from COVID-19-induced recessions and fallout from ongoing global supply chain disruptions, 2022 poses continued challenges and new prospects.

The International Construction Market Survey from Turner & Townsend, Australia, has become the fourth most expensive region for construction labour globally, reaching an average of US$75.5 per hour. Switzerland (US$118.1) is the most costly, followed by Austria (US$77.7), and the United States is placed third (US$77.1). Within Australia. Australia recorded an increase of 6.5 per cent over the last 12 months and an increase of 28 per cent since 2019. Labour shortages are another factor putting businesses under strain. Unemployment levels are down, and job vacancies are up.

Australia’s Economy:

Australia recorded strong growth in 2021, and this is set to continue throughout 2022. Australia’s economy grew by 4.3 per cent in the year to Q4 2021.

Australia’s economic outlook, according to KPMG, has identified some key issues for our economy, which are not a surprise for the construction industry:

• Inflation is accelerating, putting pressure on the cost of living;
• Further tightening in the labour market with limited spare capacity;
• Central banks worldwide have begun tightening monetary conditions rapidly to manage further robust growth in demand in the presence of continued supply constraints.

The latest data confirms that the labour market has minimal spare capacity. The participation rate is at a high of 66 per cent, while the unemployment and underemployment rates continue to trend down. Concurrently, the number of job vacancies has been trending up, with only 1.3 unemployed persons per job vacancy in the most recent data.

Unemployment is at a low level in Australia at 3.5% in June, the lowest rate in 48 years, and staff shortages are widely reported and temporary business shutdowns common. Australia has some of the strictest restrictions on interstate and overseas people movements during the pandemic, and as in some sectors it is reliant on overseas workers, labour shortages have worsened.

According to the Australian Bureau of Statistics (ABS), over the 12 months to the June 2022 quarter, the CPI rose 6.1%, with the most significant price rises in dwelling construction costs and automotive fuel prices. Higher housing costs are being driven by record low-interest rates and a desire by people to live in better, more spacious accommodation when working from home. At these rates, the Reserve Banks are lifting interest rates and watching to see whether a high inflation mindset is being established long-term.

Higher interest rates will dampen growth, especially as the level of mortgage debt has risen. According to ABS lending indicators released in August, 2022, the average new national loan value in Australia reached AU$622,000 in June 2022, up 7.6% on June 2021.

Construction Labour Shortages

The loss of skilled migration during 2020-21 considerably impacted the availability of construction labour in these markets, which has subsequently pushed up labour costs.

A delayed resumption of labour migration has exacerbated the problem. Large movements of international labour have not yet fully resumed. Most international flights are back in service, but sporadic border closures or restrictions continue. The global travel and tourism sectors are not projected to return to pre-pandemic levels until 2023.

This means that the available workforce is in a strong position to negotiate pay rises or move between jobs for higher pay, which adds to inflation.

Skilled Migration Construction Workers

While international borders have reopened and migration has returned to most regions, there is still an overwhelming deficit in construction skills. Several factors are driving skills shortages in the construction industry.

Increased demand has undoubtedly played its part as activity outstripped supply following the COVID-19 recession and its resulting redundancies. In addition, socio-cultural trends have been drivers for tightening the labour pool when many workers’ preferences changed during the pandemic. Known as ‘The Great Resignation’ and the ‘Great Retirement’, many workers reconsidered the role of employment in their lives as they faced sickness and burnout. This prompted a mass resignation, where people are changing their employers, careers, and industries to suit newfound priorities.

The construction sector has not been immune to this. Growing skills shortages and changes in employee preferences have prompted workers to demand higher pay and changed working conditions or seek opportunities elsewhere. This trend is expected to continue for some time, while the global skilled worker deficit continues.

Ageing Workers in Construction

Another key factor impacting the construction sector is the ageing population. In construction markets worldwide, the demographic of construction workers continues to grow older, with fewer young people choosing construction as a career.

Whilst demand is relatively fluid, supply is restricted, and the ability to recruit, train and mobilise new construction labour takes time, leaving a systemic shortfall. Increasing the available labour pool is a critical challenge facing the construction industry today and in the future. The industry will need to take a considered and innovative approach to encourage and incentivise more young people to enter the construction sector to grow the workforce.

Construction Sector Performance

Total construction reduced in 2020 but recovered strongly during 2021 to close to pre-pandemic levels.

The construction sectors in Queensland and West Australia are operating at full capacity, and reduced competition is pushing prices higher. Regional Queensland is especially short of capacity, and some market capacity and contractor pricing remain more competitive in Sydney and Melbourne than in other states. The various state governments have indicated a willingness to delay project start dates to utilise construction resources more evenly and prevent spikes in costs.

All regions have similar issues concerning higher materials costs. Prices of steel, electrical cabling, roofing materials, timber, and plastic pipes have all increased, and with lump sum contracts still common, the risk to lead contractors is increasing.

Housing construction trade skills have been in great demand, since 2020, when many home-based workers sought renovation works, to the present, where new house construction is robust.

Top-performing sectors

High volumes of transport infrastructure continue with major transport projects underway in most state capitals. These include the AU$12bn Sydney Metro with 85 stations, Melbourne Metro Tunnel AU$11bn, Brisbane’s Cross River Rail AU$5.4bn, Western Sydney Airport AU$5.3bn and Melbourne Airport link AU$5bn.

The east coast regional cities of Australia are being connected by the construction of the Melbourne to Brisbane Inland Rail AU$9.3bn, which will move agricultural produce, minerals and other freight.

Brisbane has been awarded the Olympic Games for 2032, and there will be a new stadium, the Brisbane Arena, built at The Gabba, as well as 30 other new or rejuvenated sports facilities.

The commercial sector saw projects put on hold at the start of the pandemic, but many are now re-starting. A $1bn redevelopment on the Brisbane Waterfront is to be started by Dexus in 2022, and an even larger AU$2.5bn commercial tower project is planned for Central Station in Sydney.

Environmental Agenda Creates Construction Opportunities

Climate change was a key issue in the recent Federal election. In May 2022, Australia elected a new pro-environment government committed to reducing carbon emissions by 43 per cent relative to 2005 levels by 2030. The incoming government anticipates this will create 604,000 jobs and generate $52 billion in private investment.

Solar projects are progressing rapidly in Australia, with approximately 25GW of PV power installed and providing up to 10 per cent of Australia’s energy needs. The sector is moving quickly with new projects announced regularly.

A significant project being assessed is the Sun Cable project which aims to create the world’s largest solar farm and battery storage facility in the Northern Territory with an undersea cable link to export energy to Singapore. This project is currently in the planning and capital-raising stage, with a planned go-live in 2027.

Across Australia and New Zealand, there is a lot of activity in establishing green hydrogen projects. Fortescue Future Industries recently announced the construction of a Queensland plant to build equipment that produces green hydrogen, including electrolysers and wind turbines. This, in conjunction with a AU$3bn investment in a wind solar and battery farm, should help kickstart Gladstone in Queensland as a major hydrogen exporter.

Future Outlook is Positive

• Organisations and sector bodies are now looking to secure skills for the future – presenting a compelling vision of their industry to attract a diverse talent pipeline. They have identified that without a steady influx of new blood, the impacts felt due to tightening labour markets are a top issue to be addressed.
• Over this year, some of the key drivers of inflation should abate as supply chains improve. Steel and other building materials prices should stabilise and return to normal levels.
• Inflation is likely to increase further, and interest rate rises are likely to dampen domestic demand and take some of the heat out of the construction industry. Overall, however, economic prospects look solid.
• International migration numbers are set to increase again, and this is set to ease construction skills shortages.
• Numerous long-term infrastructure projects are underway, and a significant number of private sector projects. Construction projects in defence, health, education and a resurgence of the commercial sector should keep the construction sector strong. 

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