The treasurer has reduced the infrastructure pipeline: will it work?

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This week’s federal budget cut infrastructure spending, a notion that would have been unthinkable just 12 months ago.

The expected four-year record $65.8 billion for infrastructure committed by the Morrison government in its pre-election budget has been cut to $61.3 billion, from $56.9 billion in the 2021-22 fiscal year .

The political courage required to bring about this change, in particular on the part of a Prime Minister who has staked his letters of nobility on infrastructure, must be welcomed.

It’s a much-needed lifeline for an overheated building and construction sector struggling to deliver on its long-standing promises.

The reality of economic and market conditions, from high construction activity to labor shortages, and ongoing supply chain disruptions have created a perfect storm of conditions that are severely hampering the ability of the industry to meet government commitments.

While spending on new infrastructure has been moderate, it still represents a record commitment to infrastructure spending at a time when state and territory governments are delaying or “reprofile” existing commitments.

In the face of record spending on “hard” economic infrastructure, the softer side of the sector, housing, education and health, has often struggled to gain attention.

In response, the Albanian government is pursuing massive investment in affordable housing with a target of 1 million homes over five years from 2024. This investment is equal to the total number of homes built in Australia over the past five years.

There is no doubt that Australia needs an expansion of social infrastructure, including adequate social and affordable housing. The Australian Housing and Urban Research Institute has warned that Australia is short of 727,300 social housing units by 2036.

However, the massive commitment to public infrastructure and this substantial commitment to affordable housing is likely to add to the current pressure on access to skills and materials, resulting in higher material prices and delays.

The impact of heavy public investment in construction, escalating building materials and rising interest rates mean that opportunities for the private housing market will be further reduced.

Infrastructure Australia’s market capacity study shows that over the next four years, building, construction and engineering will account for more than 20% of Australia’s economic activity. These cost pressures are a major contributor to inflationary pressure, which is at its highest level since 1990.

Infrastructure Australia’s market capacity research shows that at its peak in 2023, building and construction will account for over 20% of the Australian economy. This is up from the 9% average.

Australia’s extensive building and construction pipeline is a major driver of economic activity and overtakes the UK (6%) and the US (4%) in terms of share of the economy.

However, it also contributes to inflation, which is at its highest level since 1990.

Accelerating global spending on building and construction is causing labor constraints in Australia and overseas. For example, the US Chamber of Commerce reported that more than 90% of US entrepreneurs are concerned about labor shortages, with 57% experiencing them today. Shortages of structural steel, precast concrete products and lumber also persist.

Whether it’s a train station, a hospital or a house, every project built puts pressure on demand for a range of common materials and skills, from concrete to tilers.

Although vast changes are needed in the industry to adapt to these high levels of activity. Priority must be given to reducing waste, incorporating new materials and changing the design and contracting of projects.

NSW Infrastructure Minister Rob Stokes recently signaled that it was essential to break the risk-averse ‘compliance culture’.

As Stokes said, our conservative design standards mean we put more concrete and steel in roads, bridges and railways than anyone else in the world.

In addition to this demand, up to 30% of all building materials delivered to a typical construction site can end up as waste.

This waste and gold plating further entrenches the overheated market. It also sets the bar higher for the sector to reach net zero.

An industry that is overwhelmed, with few resources and facing extremely thin margins, is not an industry best placed to support innovation.

A critical step for government must be to better coordinate spending between the engineering, building and construction markets. This should include providing detailed industry insight on potential future requirements, and then greater opportunity for industry to innovate in project design and support the transition to new delivery practices and methodologies.

This will require government to provide greater flexibility for industry to be more innovative in design and move away from the notion that bigger is better, both in terms of spending and Design.

We need to take a more coordinated approach to selecting, tendering and building major projects if communities are to take full advantage of this substantial infrastructure investment.

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