What Does Australia Make for Construction These Days? 5

Monday, July 6th, 2015
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Construction is pump priming the post mining boom economic hole, so it’s perhaps useful to reflect on what Australia actually makes that goes into projects these days.

A huge case is made about the economic benefits of construction. That’s true, but the reality is that a good deal of Australia’s construction expenditure now stimulates a lot of other economies as well.

There’s not a lot of published material on this subject, and much of what is published is hard to find. The Australian Bureau of Statistics does not make it easy. For instance, timber and fish are in the same grouping. Australian content is not a driver for most of those who benefit from construction’s upswing. They profit from trading across a basket of construction’s goods and services and they are mostly indifferent to the source.

The mining boom led the charge in redefining where much of Australia’s future construction inputs will come from. The high cost of labour and recalcitrant unions drove billions in potential construction supplies and jobs offshore, thereby accelerating this trend. Developers and builders today increasingly look offshore just to stay viable in the local construction game.

Australian governments seem oblivious to all of this and on the face of it, they appear just as indifferent. This is in sharp contrast to the efforts of many of our international trading counterparts, who are purposely intent on turning around their declining domestic construction outputs and stemming the economic loss of over reliance on imports. Australia is sorely lacking in policy and leadership in this area.

There are minor differences in the sourcing of construction materials between the commercial and residential sectors. Multi-unit construction three storeys and above generally behaves like the commercial construction sector. There are several explanations for this. The traditional residential market predominantly builds detached and town house dwellings up to two levels. These builders are craft orientated and use traditional trades. They are typically non-union, but they are now being driven to change by increasing labour costs and a decline in the quality of skilled trades people.

The term “bricks and mortar” has traditionally been used as the hallmark descriptor of construction assets. These days, the cost of laying bricks on site is often double the cost of the bricks in the first place. Bricks are heavy energy consumers. Brick manufacturers are struggling to compete with less labour intensive alternatives such as texture coated fibre cement sheeting and precast concrete. Meanwhile, there is now an impressive range of autoclaved masonry alternatives coming onto the market from offshore that will probably redefine a new metaphor for bricks and mortar assets. There are many other disruptors on the horizon. Composites and plastics are among them.

Timber consumption in construction is under pressure as the residential market increasingly turns to high-rise multi-unit development. Detached housing is the main user of timber in construction, but Australian construction consumers would be astounded at the amount of timber imported for residential construction, much of it grown in northern hemisphere forests. Timber use in higher rise construction has a long way to go if it is to emulate emerging uses in northern hemisphere markets. Despite sound reasoning about the environmental benefits of timber in construction, Australia has neither a national forest strategy directed at growing the necessary regrowth timber species or much client side demand to see timber replace their belief that traditional bricks and mortar is best.

Before a single construction build starts onsite, no materials or labour can be moved without the use of imported fuel. Then materials and workers are conveyed in the imported vehicles that line every road at the start and end of each day. The rubbish generated from construction’s still inefficient procurement and work practices then fill imported trucks that help clog our roads and are rapidly reducing future landfill capacity. The cost of these materials, the wasted labour effort, and disposal and in the end the final cost to the industry’s customers is a pretty unsustainable scenario.

New buildings are then furnished and fitted out with appliances such as fridges, washing machines, televisions and the like, all imported. Most information technology used in the design of buildings, managing the construction process and operating the final product is imported. There are exceptions. Firms like Aconex and Health Projects International are making strong overseas incursions. Often Australian innovation needs to go offshore to be accepted or to gain success. There is little to support or enable domestic innovation to alternates from overseas.

At a time when construction is enjoying many incentives such as publicly funded infrastructure spending, record low interest rates and fast tracked building consents, it’s difficult to understand how policy makers are getting away with claiming the level of economic benefits of construction to the public. Yes, there is massive investment in the end product, but the growing leakage of what is held out as a domestic success story must be brought into perspective. Simply using cranes on city skylines, the surging pace of new apartment developments and an upswing in housing supply more widely helps address prior supply short comings, but it is not evidence of a viable domestic construction industry. If this were acknowledged, there would be a case to redirect some existing industry incentives more strategically for the longer-term benefit of construction and the economy.

I wonder if any politician stops to consider that not one of those cranes is made domestically. Some are designed and assembled here but over 80 per cent of their content is imported. I wonder if any policy maker gets down to the wharfs and counts the container loads of construction equipment, timber, steel, glass, plasterboard, bathroom and kitchen components that we now seem unable to make here.

The construction value chain is like an ecosystem. It needs direction and care. Leaving it to the elements and those indifferent to where it comes from is bad policy and it fails the economic test. How can countries like Singapore, Malaysia, Japan, the UK and Germany have worked this out?

Turning this lamentable situation around will require a fundamental rethink about what the Australian construction supply chain can excel at in the future. We also need to take stock of the economic advantage we give to competitors through the supply of cheap coal and iron ore, and in the case of New Zealand, massive quantities of raw logs.

Our Tasman neighbours are the largest supplier of raw logs to China. We need to take stock of what manufacturing leverage we could create from lowering construction’s dependence on imported fuel and the burden of high-energy costs. Australia has the potential to accelerate the supply of renewable and stored energy. Even if this needs to be subsidised to help offset the economic advantages we are giving to competitors, it’s an option.

Australia and New Zealand should give serious consideration to rapidly harmonising their construction markets, adopting common standards and compliance regimes. It is foolish in the extreme to sustain eight state and territories’ sovereign rights, just as it is to allow the industry’s trade and professional associations to preserve these barriers to a “one country” response to a game we are losing. New Zealand has a lot to offer. Their industry standards organisation BRANZ is well established and respected. Given the substantial investment required, to maintain industry standards and compliance and to keep pace with new technologies and construction methods duplication across borders seems a folly that can no longer be sustained. Developments in engineered timber are a good example.

Its high time Australia’s states and territories demanded the creation of a national construction ministry, one they did not need to emulate at state and territory level. And its time that they acknowledged the decline in economic benefit from the observable leakage of construction inputs to offshore. Its time they started to do something about it. Its time measured productivity improvement, innovation and competitiveness became the core strategies to help Australia get back in the game where construction has become global, industrialised and increasingly leaving us behind.

It really is time for our politicians and policy makers to tone down their diversionary tactic of calling the current burst of construction stimulus an economic godsend. It may have been in the past, but construction will eventually reach a point where as much as 60 per cent and possibly more of its inputs will occur off-site through the use of widely sourced smarter materials, components, sub-assemblies and modules. If there is doubt about this, look at what is already happening in China and India.

Remaining indifferent to source will only consign another industry to the oblivion now being experienced by Australia’s motor vehicle industry and dilute construction’s future economic value.

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  1. Andrew Heaton

    Probably one of the best indicators of all this is the decline in the domestic steel manufacturing industry, which has shrunk in output volumes by more than a third over the past five years and has analysts questioning its long term viability. With the recent signing of the FTA with China, which produces more than half of the world's steel, domestic manufacturers will be under further pressure.

    One way to address these is through industry participation plans which require owners of major projects to demonstrate that they have given local suppliers fair opportunity to gain work.

    None of that matters, however, if we do not have in place a sound strategy for the long-term viability of our manufacturing sector. There are varying views about whether Australia can or even should try to compete in a global manufacturing environment, but if we are going to try, then at least surely we need a sound game plan and a strong culture of innovation.

    • Rob Emerson

      Unfortunately, with the signing of the FTA with China, Australia's remaining steel making industry is done and dusted. 🙁
      Recent media reports about BlueScope testing the waters with "leaks" of closure of Port Kembla are evidence of this.
      The kiss of death can also be applied to what remains of local manufacturing. Much of it has already gone. Electrical cable, door locks, hinges, doors, and general hardware, taps, hot water heaters, etc etc all gone.
      All written off so the farmers can sell to China their wheat, lamp chops and sausages.
      We get cheap TV's and manufactured product in return. I suppose we will need all this cheaper manufactured product as many here won't be able to afford it as they won't have the jobs,
      I hope it's all worth it.

  2. David

    The current proposal for change (PfC) to the National Construction Code to allow the use of timber (both traditional framing and engineered timber systems) in buildings of up to 8 storeys presents an opportunity for Australian processors and manufacturers to supply this new market. With estimated cost savings of around 10-15% per project potentially going straight to developers' bottom line, demand could be considerable – and met by imports if there's no viable local alternative.

  3. Bruce Christopher

    Of course there are Australian made materials and products still available and your point about the difficulty to identify those, or in some cases the motivation to, is a good lead to the benefits of a more coordinated group of Australian manufacturers to collectively boost their own profile.

    There are a number of groups that do promote Australian made, yet a big step in recognition and future broader benefits of support would result if the Government and more people got behind them and the remaining companies took a more collective approach.

    Industry groups are gaining momentum from the much higher degree of non-compliance of materials that are causing failures so costly (electrical cable insulation, windows and frames, steel and coatings, cladding to name a few) that the justification of savings for offshoring is being challenged.

    Proper attention to scrutiny and accountability for compliance and safety will strengthen the case for a more level playing field as long as the momentum continues and the imperative for improvement becomes a national priority.

  4. Julie Ward

    Unfortunately while I agree mostly with what you have said you have failed to take into account that the Government at some stage signed the MAI agreement which allows multinational comapnies to buy up Australian companies and bring in their own labour force to the detriment of Australia as a whole. The agreement was signed for the duration of 25 years and was to end in the year 2000. This agreement has changed how we operate, where our goods and services come from and ultimately allowed 90% of income to go offshore. it also dumbs down our trades and education to that of those previously taken through the same system in other countries. I wonder who signed the agreement and just what they expected to happen. We will not see any progress in this nation until the multinationals stop taking the profit out of Australia and we start valuing quality and knowledge once again. There is no 'Australian Standard' anymore in anything. I am thoroughly dissenchanted in the moral decline of Australia in every aspect.