Transcript The JNP Calculator - Institute of Public Affairs

Construction Industry Productivity
TO BUILD or NOT TO BUILD
The Future of the Australian Construction Industry
Conference hosted by Institute of Public Affairs
The Impact of Workplace Reform in the
Construction Industry
6 September 2007
Jodie Patron, Senior Consultant, Econtech
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Outline

Background

Building Costs Comparison

Other Evidence

Effects of Productivity Gains
econ
TECH
Background

Report for the ABCC on “Economic Analysis of
Building and Construction Industry Productivity”,
July 2007.

Two objectives:
• What effect has the ABCC and the industrial relations reforms
had in the building and construction industry?
• What are the flow-on effects on the Australian economy?
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Outline

Objectives

Building Costs Comparison

Other Evidence

Effects of Productivity Gains
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Building Costs Comparison:
Previous Study

Econtech Report for DEWR (2003):
• same standard building tasks cost an average of 9.6% more for
commercial buildings than domestic residential housing
• Cost gap highest in Victoria and Western Australia
• Suggested this gap could be reduced through reform of work
practices in the commercial building sector

Toner Report for CFMEU (2003):
• Acknowledged the cost gap
• Argued it was due to the different nature of commercial
building projects, rather than work practices
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Building Costs Comparison:
This Study

Econtech Report for ABCC (2007):
• Updated the 2003 study
• In 2007, the cost gap has almost vanished
• Comparison based on the same tasks in the same states in the
same years

Mitchell Report for CFMEU (2007):
• While Toner acknowledged a cost gap, Mitchell claims no such
gap exists
• suggests the cost gap measure should be based on a
cost-per-square metre comparison between the two sectors.
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This is not a like-for-like comparison.
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Building Costs Comparison:
Commercial - Residential, Australia
20%
15%
10%
5%
0%
1994
1996
1998
2000
2002
2004
2006
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Building Costs Comparison:
Commercial - Residential Cost Gap

Historically (1994 to 2003): commercial building costs
were 10.7% higher than residential building costs

This difference has reduced significantly since 2004
• due to improvements in labour productivity
• resulting from the activities of the ABCC and the IR reforms


2007: commercial building costs are only 1.7% higher
than residential building costs
Based on a comparison of the same tasks in the same
states in the same years
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Building Costs Comparison:
Gains in Labour Productivity


Since 1994 the difference between commercial and
residential costs has fallen by 9 percentage points
This indicates
• a gain in labour productivity for commercial building of 17.6%
• a gain in labour productivity for the construction industry as a
whole of 9.4%

This result is consistent with what has happened to
labour productivity at the aggregate level
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Outline

Objectives

Building Costs Comparison

Other Evidence

Effects of Productivity Gains
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Other Evidence:
Construction Company Views

Four case studies
• Two high density residential projects in QLD
• Two office projects in VIC

The ABCC and the IR reforms have lead to:
•
•
•
•
•
significant reduction in days lost due to industrial action;
less abuse and proper management of OH&S issues;
proper management of inclement weather procedures;
improvement of rostering arrangements; and
cost savings from the prohibition on pattern bargaining.
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Other Evidence:
Average Lost Days (per annum)
29
30.0
21
20.0
10.0
2
1
0.0
Office building
Pre ABCC
High Density Residential
Post ABCC
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Other Evidence:
Construction Productivity Measures
80
70
60
50
40
1985
1988
1991
1994
1997
2000
2003
predicted productivity in construction
actual productivity in construction
2006
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Outline

Objectives

Building Costs Comparison

Other Evidence

Effects of Productivity Gains
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TECH
Effects of Productivity Gains:
Economic Modelling

What does a 9.4% gain in construction labour
productivity mean for the Australian economy?

Econtech used its detailed MM600+ model to answer
this question

MM600+
• distinguishes 672 products and 8 construction categories; and
• models long-run or ongoing effects

Key result
• lower construction costs flow through to lower prices making
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consumers better off by around $5 billion in today’s
economy (or 0.8 per cent) on an annual basis
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Effects of Productivity Gains:
Construction Industry
5%
2.3%
2.8%
0%
-5%
-3.2%
-5.8%
-10%
Cost of construction
Residential building construction
Production
Other construction
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Effects of Productivity Gains:
Australia
4%
2.9%
2%
1.5%
0.8%
0%
-1.2%
-2%
Business
Investment
GDP
Consumer
Prices (CPI)
Real
Consumption
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