Builders call for support as housing costs rise 9%, while Jim Chalmers prepares to dampen economic expectations

Construction

Source: Splash/Anthony Fomin.

The federal government should compensate building contractors for projects which skyrocket in price and keep the Australian Building and Construction Commission (ABCC) in place, peak construction industry organisations say, claiming that bruising new inflation data proves the sector needs further support.

The Australian Bureau of Statistics revealed Consumer Price Index for the June quarter on Wednesday, showing headline inflation rising by 6.1% over the year.

The cost of housing was a significant contributor to that inflation surge, growing 2.5% over the quarter and 9% through the year.

Shortages of crucial building supplies, qualified tradespeople, and high freight costs caused by the rising cost of fuel all drove inflation in the construction sector, the ABS said.

At the same time, demand for construction remained high in June, with a record number of homes under construction.

Now, thanks to pandemic-era incentives like the Morrison government’s Homebuilder scheme, many buyers are now powering ahead with fixed-price contracts signed when material prices were significantly lower than they are now.

This trend has forced many builders to the brink of insolvency and beyond, as companies struggle to reconcile their contractual obligations against the rapidly increasing cost of materials.

Industry groups say inflation data proves need for government assistance

The Australian Constructors Association (ACA), representing industry giants like Built, Icon, and Multiplex, says the inflation data was proof builders need more support to prevent the wave of insolvencies coursing through the sector.

“The industry cannot continue to bear the cost of these steep price increases — some costs will need to be passed on to halt the growing trend of insolvencies,” CEO Jon Davies said Thursday.

In its own report, also released today, the organisation proposed a system whereby governments “agree a mechanism to compensate industry for the increased costs” through a ‘rise and fall clause’ mechanism.

Australian governments could act as a “model client” by allowing such contract variations, the organisation says.

“Major projects are often entered into years before they are completed and no one could have foreseen the current environment and priced for it,” Davies said.

“Governments, in particular, should not seek to secure projects for less than cost as the impact across the supply network is considerable,” he added.

The Master Builders Association of Australia, which represents homebuilders, says the inflation data proved the government should back policies and projects supporting industry players.

“The federal government’s move to fast track the dismantling of the ABCC comprehensively fails this test,” CEO Denita Wawn said Wednesday.

Her statement referred to the Albanese government’s pledge to scrap an industry watchdog Workplace Relations Minister Tony Burke this week accused of working to “discredit and dismantle unions and undermine the pay, conditions and job security” of workers.

Wawn also reiterated her earlier claims that the Reserve Bank of Australia should take a gentle approach to future interest rate rises, with the construction industry likely to suffer further if the cost of borrowing a mortgage eventually deters Australian homebuyers from the market.

Industry pleas arrive as Labor prepares downgraded economic forecast

The industry’s pleas for new support have emerged in a turbulent economic environment, and are largely directed to a federal government keenly focused on its own balance sheet.

Treasurer Jim Chalmers is expected to deliver an economic update to Parliament just after midday on Thursday, outlining how real GDP is expected to grow by 3.75% in 2022-2023, down from the 4.25% rate projected before the May election.

However, some new government measures may soon flow through to the sector.

While contract leniency proposed by the ACA is not on the immediate policy agenda, and Labor is highly unlikely to reverse course on its ABCC plans, Chalmers has suggested some support for homeowners is on the way.

“Some of our most substantial policies you’ll see budgeted for in October are around housing, whether it’s help to buy, whether it’s the housing future fund,” Chalmers told reporters after inflation data arrived Wednesday.

“We’ve made housing a big priority, because it’s a big part of the inflation challenge.”

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