Victoria’s Big Building Projects ‘Driving Costs Up’

Victoria is in the throes of growing pains as the state's Big Build and infrastructure spending absorbs labour and materials in an already constrained market.

Speaking at The Urban Developer's Victorian Economic Outlook event this week, KPMG chief economist Dr Brendan Rynne said the cost of construction was escalating due to the sheer volume of work on the books across the state.

“What that’s doing is seeing the supply of tradespeople and the supply of products moving to larger, longer projects that tend to pay better,” Rynne said, which he explained, made it harder for smaller, private projects to attract labour. 

Rynne was speaking to about 275 industry leaders at The Urban Developer’s Property and Economic Outlook event in Melbourne, the third and final event in the series.

According to data released this week, Australians experienced their biggest real wage decline on record, with nominal wages growing by 3.3 per cent in 2022, well below inflation of 7.8 per cent.

Private sector wage growth of 3.6 per cent was significantly higher than in the public sector (about 2.5 per cent), according to the Australian Bureau of Statistics.

▲ KPMG’s chief economist Dr Brendan Rynne: government infrastructure is crowding out private investment.

Rynne said direct domestic factors, such as wages, were much more important in driving inflation in the country.

“The average wages growth of around 3.3 per cent is a little bit lower than what was anticipated.  The market was anticipating about 3.5 per cent.

“Not enough, I think, to change the perspective of the Reserve Bank.”

But there is light at the end of an otherwise dark and gloomy tunnel for the construction induistry, according to the KPMG partner.

“We’re not going into a dip and then staying there and life's going to be shit forever, it will get better. What you need to do is position your business for this,” he told the breakfast meeting.

“The first thing is get your house in order, clean the balance sheet, cut the costs down, work out what you've got,” he said.  “If you’re carrying stock you shouldn’t be carrying just get rid of it.

“Manage your own debt exposure, because you’re going to be getting much higher interest rate classes.”

And as the Latin proverb goes, fortune favours the bold.  Or in more modern parlance, bank land.

“There’s going to be deals out there, there are going to be people who in clearing up their own things, are going to have to sell good pieces of investment, good pieces of land because they simply overextended from where they are,” Rynne said.

“If you’ve got the capacity to do that, then be on the lookout for opportunities to landbank.”