PricewaterhouseCoopers (PwC) has released a new report arguing that low productivity in the construction industry is pushing-up costs. From the AFR:
The construction sector is a big contributor to the Australian economy but is a “serial underperformer” when it comes to productivity, says PricewaterhouseCoopers in a new report…
“Improved productivity would drive lower costs and mean savings for both the private sector and government,” said economist and PwC partner Jeremy Thorpe.
“New home buyers and consumers at large would also benefit with lower construction costs pushing up real wages. The construction industry doesn’t have a good track record when it comes to improving productivity – it’s a serial underperformer”…
PwC identifies four areas to improve construction productivity: technology, skills, red tape and industrial relations…
It said a 1 per cent productivity improvement would reduce the need for labour and would consequently lower production costs and the overall cost of investment in buildings and structures.
While productivity in the construction industry could no doubt be improved (as is the case for all industries), PwC’s report seems to overlook the bigger driver of high building costs: excessive land prices.
While construction costs for new dwellings have grown faster than inflation since 1999, their growth has been nowhere near that of land prices – essentially the difference between house prices and the cost of production (see next chart).
Similarly, when compared against Australia’s GDP, the value of housing-related structures has barely shifted in almost 25 years, whereas the value of residential land has roughly doubled (see next chart).
Efforts to raise construction-related productivity should, in the first instance, focus on lowering land costs, since these hold the biggest potential gains for the construction industry and economy.
