Dwelling costs are about to be slashed

If Tony Abbott and Eric Abetz can enact their building and construction legislation and builders can then implement efficient construction procedures, then the costs of a five-storey apartment block will fall by between 20 and 30 per cent and a high rise apartment tower by at least 10 per cent.

These are not my estimates, but were submitted to the ADC Australian Infrastructure Summit by Tony Boyd, the general manager of residential operations at building giant Australand.

It was the first time a major builder/ developer has put a firm figure on the community benefits of the flexible construction rules which are being opposed so vigorously by the building unions and the parties they support, the ALP and the Greens.

It was clear from the summit that, if the costs are reduced, we will see a big rise in the number of five-storey apartments because buildings of this size are able to adapt home-building techniques and construction methods.  

There have been enormous strides in home-building productivity, but currently these efficiencies are restricted to three-storey buildings by the unions. 

High-rise towers require more investment in supporting structures, so the extra productivity gains are a lesser percentage of the total outlay, but they are still substantial.

Nevertheless, politicians are looking at increasing the amount of infrastructure they can build with the same outlays by at least 10 per cent and very often by much larger amounts. It’s set to be a huge win for the communities but a blow to union power and the benefits that restricting competition and productivity improvements have delivered to large building companies (A nail in the construction cartel coffin, January 29).

Victoria, Queensland and New South Wales have enacted legislation that does not affect wages rates on building sites, but limits union access to those sites and prevents unions from being able to approve who can be subcontractors. In the Victoria’s East West Tunnel, the government authority is auditing the tenderers to make sure their labour and subcontracting agreements comply with the state legislation before consortiums actually make their tender (Construction sweetheart deals face the wrecking ball, December 20).

The increased flexibility in building and the ability to cast a wider net for subcontractors delivers the productivity increases necessary to enable the cost reductions forecast by Australand to be achieved. However, many big builders may not have the management ability to take advantage of the legislated freedoms. As a result, for the community to benefit fully, new entrants to the industry may be required.

Victoria and Queensland have been reducing their construction costs while New South Wales has been more tardy. But there is a limit to what individual states can achieve without the Commonwealth. The essence of the legislation, whether it is Commonwealth or state, is to set up a code of practice required for government work and require those practices to be used in all construction projects undertaken by the builder.

For most of the builders, 70 per cent of their work is government-related so unless they comply, they are out of business. The first leg of the Commonwealth legislation has passed the lower house and there is a second part to be introduced soon. Both pieces of legislation are close to the state models but will not pass the Senate as presently constituted. 

After July 1, the new five non-major party right wing senators are likely to vote for the legislation because it is in accordance with what the Coalition took to the electorate. A sixth vote is required, which will need to come from the new WA Senate election, the DLP senator or senator Nick Xenophon

Even if it fails to pass the Senate, the combination of state legislation and Commonwealth regulations in tendering will go a long way to achieving the lower costs.

The fact that the extensive power building unions now have over building sites has been allegedly used for criminal behaviour is a side issue. The main game is to build more infrastructure for the same dollars and lower the cost of dwellings (A new way to fund rail, roads and hospitals, March 17).

Currently there are a large number of residential towers and projects on the drawing board in Sydney and Melbourne that will benefit from better productivity. But it comes too late for the massive mining investment boom. Many mineral projects bore the brunt of bad productivity.