Economic Policy - Construction
Extract from Hansard
[COUNCIL — Wednesday, 23 October 2024]
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Hon Dr Steve Thomas
ECONOMIC POLICY — CONSTRUCTION
Hon Dr Steve Thomas (South West Region) (6:16P): I work fairly hard in the Legislative Council to introduce fairly sensible economic policy and debate. I have to say, it is a fairly frustrating exercise. If it makes members of the Council feel any better, it is a fairly frustrating exercise to introduce it to political parties as well, because I am not sure that anybody listens all that much. It saddens me deeply that good economic debate and good economic rules get thrown out the window.
Over the last couple of years, members will frequently have heard me talk about issues around the economy and construction. When we have a massive amount of construction happening, the industry will overheat. Members have heard me say before that when the state government moves its infrastructure spend from $5 billion to $10 billion and then to $12 billion a year, and the mining sector says that we need 40 000 new jobs in Western Australia because, ultimately, we do not have enough workers for the construction we are going to have, that is a massive impost on the economy of Western Australia. The third group in construction is the poor person who is trying to build a house. They cannot compete with the government and the mining sector. I will say it until I am blue in the face, and I think that everybody disregards it. The government disregards it. I suspect that the opposition disregards it. Nobody is very interested, except for those people who have an interest in and an understanding of economics. I know that there is an occasional smattering of members in the Legislative Council who are interested, and I am quietly encouraged by that.
I want to give some encouragement to those people in the room with an economic bent who actually understand the principles involved. I ask them not to take my word for it. Members might have noticed that there was a very interesting release yesterday from Deloitte Access Economics dealing with this particular issue. I am going to quote from a media release from Deloitte Access Economics of Tuesday, 22 October 2024. The author of a report on this issue said —
“The construction sector has been dogged by difficulties since the onset of the pandemic, including high wage and materials costs, labour shortages, restricted site access and, ultimately, a squeeze on profits.
…
Adding to the woes is the fact that although construction costs are no longer accelerating higher, neither are they declining. With permanently higher construction costs, the sector will be both unwilling and unable to lift supply unless property prices also lift … That is, housing affordability will get worse before it has a hope of getting better.
I think they are wise words that everyone in the chamber should take notice of. It means that it will get tough. I am pleased that the Premier, Hon Roger Cook, has been quoting some of this stuff. I hope someone passed on this speech to him because he needs to know, and members need to learn this. A short summary document was done of this study. I will try to read it in. It refers to the Business Outlook by Deloitte Access Economics and says —
This edition of Business Outlook contains a material downgrade in Deloitte Access Economics’ expectations for new dwelling commencements. In earlier editions, the potential for the construction sector to find its feet underpinned the expectation of an upswing in construction activity through 2025.
Not any longer.
The construction sector has been dogged by difficulties since the onset of the pandemic, including high wage and materials costs, a shortage of labour, restricted site access and, ultimately, a squeeze on profits.
Related to these challenges, the Federal Government’s HomeBuilder program contributed significantly to the backlog of residential construction projects. To qualify for the HomeBuilder grant, applicants were required to enter a contract between June 2020 and March 2021, with construction to commence within 18 months of the contract date. As such, HomeBuilder distorted demand by inducing a ‘bring forward’ of activity that otherwise would have taken place later (or not at all), further straining a sector already under pressure.
The sector is gradually working through the significant number of dwelling projects under construction in Australia at present. But doing so leaves very little spare capacity to start new projects. Adding to the woes is the fact that although construction costs are no longer accelerating higher, neither are they declining. With permanently higher construction costs, the sector will be both unwilling and unable to lift supply unless property prices also lift commensurately. That is, housing affordability will get worse before it has a hope of getting better.
That is a fairly solid negative comment to put to the people of Western Australia. The only hope that the housing sector has of recovering is for the price of houses to go up, so people trying to get into their first house will find it more difficult. It is a crisis, and it is a crisis of government policymaking. Whether it is the federal government throwing money into the economy around construction or the mining sector throwing money into the economy around construction or whether it is home owners who are struggling, an economic policy issue is hammering the people of this state and across the entire country.
I do not generally have too many highly positive things to say about the media, but I have to say that The West Australian’s business reporter, Matt McKenzie, actually seems to understand this stuff. I suspect that he might be the best journalist that The West Australian has, and is possibly the new Shane Wright. I know that is high praise from me, because Shane Wright is an excellent economics journalist. Matt McKenzie wrote an article in today’s The West Australian on this report. It is on page 20 and states —
The pain has been exacerbated by a shortage of workers, rising material costs and the tangle of red tape.
But Deloitte cautioned that the country’s immense pipeline of public infrastructure was sucking employees away from building houses and apartments.
“Many skills in the construction sector are highly transferable, with infrastructure projects typically offering higher wages, more stable work and better conditions compared to smaller residential developments,” the report said.
“This means publicly funded infrastructure projects are competing against private housing developers for workers, adding to the cost of development and reducing the feasibility of new residential construction.”
The sector had “very little spare capacity to start new projects”, Deloitte said.
The big four consultant added that construction costs were permanently higher, and housing affordability would “get worse before it has a hope of getting better”. Deloitte also called out the Morrison government’s extraordinary stimulus spending through the HomeBuilder program—a huge sugar hit for the industry.
HomeBuilder added “significantly to the backlog of residential construction projects” by squeezing demand into a narrow time window and straining the sector, Deloitte said.
Western Australia was the only state that had not only the federal government’s stimulus package, but also a state government building stimulus package. That meant people could get up to $70 000 off the price of a new house. I have said before that that did two things. It put enormous pressure on the construction industry and pushed up the price of house construction by $70 000. There was no benefit to the community and the people of this state. Government policy, both state and federal, ended up causing immense damage to the construction industry, which, funnily enough, went out and wanted, as the paper says, these sugar hits to make sure that the industry had plenty of work. Ultimately, it caused damage. The result of that damage is that building companies went broke because they took on work that they could not deliver, particularly on fixed-price contracts when the price of everything went up by $70 000 to $100 000. I have said repeatedly that the issue is the government, which will perhaps be the next opposition as we go into the election, promising to spend billions of dollars for its political benefit rather than managing the economy in a way that delivers the best outcomes for the people of Western Australia. I see that repeating itself again and again. The government has doubled its own infrastructure spend. Yes, it will cut a lot of ribbons on Metronet projects and use that to go into the election.
Hon Stephen Dawson: You don’t like trains.
Hon Dr STEVE THOMAS: No; I love trains.
Economic policy has been thrown out the window. Funnily enough, it was thrown out the window by everybody who blamed former Governor of the Reserve Bank of Australia Mr Lowe for the interest rate rises when the new Governor took over and increased interest rates because there was no choice. I have not heard many media outlets calling for the head of Michelle Bullock. Interestingly, the economic theory and principles did not change automatically. I commend Deloitte Access Economics and I commend in particular the journalist Matt McKenzie for a very good economic piece in The West Australian today. If members do not believe me that economic policy matters and that the economic policies of government, both state and federal, are damaging the commercial and residential sectors, maybe they might believe Deloitte Access Economics and maybe members should read this article and believe Matt McKenzie, because, given the standard of his article, I think he should be believed.
