Rising wages and stagnant productivity are significantly driving up construction costs in Australia, impacting both infrastructure projects and commercial developments, according to the latest market sentiment report from Arcadis and the Australian Constructors Association (ACA). ACA CEO Jon Davies (pictured above) pointed out that the wage disparity between government and private sector projects is a major issue. "Higher labour costs and stagnating productivity growth are also diminishing the financial viability of commercial developments," Davies said, noting that 81% of respondents reported stagnation or decline in the residential construction sector.

The report identifies the hottest sectors in construction as energy and power, water, and defense. Costs for skilled trades, general labour, and consultants have risen steadily, averaging about a 5% increase from last year. However, it also highlights a decline in market sentiment due to government cutbacks, commercial sector uncertainty, and delays in new energy initiatives. "Amidst the post-pandemic recovery, Australia's construction sector continues to grapple with political turbulence and industrial strife, escalating costs and stifling productivity, which is threatening the very viability of projects and businesses," said Matthew Mackey, executive director of cost and commercial management at Arcadis. Another significant issue is the allocation of risks within contracts. Nearly three-quarters of respondents believe that current contracts do not fairly distribute risk between parties.

"Risk allocations, including those associated with the changing IR environment, are significant impediments to business viability," Mackey said. Davies also stressed the need for improved project planning and reduced construction costs to ensure Australia can afford the infrastructure it needs: "We need to double down on collaboration to solve project challenges together and we need to improve industry productivity as a matter of urgency."