Why Australian infrastructure is so expensive

Allens partner David Donnelly has warned that tunnels are the most vulnerable to cost increases and delays and pose the biggest risk to Australia’s $288 billion infrastructure boom:

Tunnels are considered the most risky projects, followed by rail then roads.

Costs on the $11 billion Melbourne Metro project, which tunnels under Melbourne’s CBD, have been rumoured to already have blown out by as much as $2 billion, partially due to the scope of the project being widened and unexpected technical risks.

Mr Donnelly said respondents were worried about the concentration of projects in transport and in the cities of Sydney and Melbourne, where tens of billions of dollars are being spent on new tunnels for metros and motorways, including the Sydney Metro and Melbourne’s West Gate Tunnel tollroad…

Governments should consider rebalancing the infrastructure pipeline towards social infrastructure such as school and hospital projects, which carry less risks of cost increases and delays than transport projects, he said.

In already built-out cities like Sydney and Melbourne, the cost of retrofitting new infrastructure to accommodate greater population densities is prohibitively expensive because of the need for land buy-backs, tunnelling, as well as disruptions to existing infrastructure. These are what economists call ‘dis-economies of scale’.

The Productivity Commission (PC) has been at the forefront highlighting the huge infrastructure costs associated with population growth.

In its 2016 Migrant Intake into Australia report, the PC noted:

Physical constraints in major cities make the costs of expanding infrastructure more expensive, so even if a user-pays model is adopted, a higher population is very likely to impose a higher cost of living for people already residing in these major cities…

Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation…

The PC’s 2018 Shifting the Dial: 5 year productivity review similarly noted that infrastructure costs will balloon due to Australian cities’ rapidly growing populations:

Growing populations will place pressure on already strained transport systems… Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly   compensation arrangements, or otherwise more expensive alternatives (such as tunnels).

Infrastructure Australia has also regularly warned on the rising cost of infrastructure provision caused by rapid population growth. For example, its 2018 Planning Liveable Cities report noted:

…construction of new infrastructure is often more expensive, due to the need to tunnel under existing structures or purchase land at higher costs. The small scale, incremental nature of growth in established areas can also lead to an over-reliance on existing infrastructure, which can result in congestion and overcrowding.

The huge cost of expanding the road network illustrates these dis-economies of scale. The next chart shows that road construction through undeveloped greenfield land (blue) is many times cheaper than tunnelling under existing brownfield land (red):

More recent examples are equally stark. The WestConnex project in Sydney will reportedly cost $17 billion for 33 kilometres ($515 million per kilometre) while Melbourne’s West Gate Tunnel is expected to cost $6.7 billion for 5 kilometres of highway ($1.34 billion per kilometre). In contrast, the 155 kilometre Woolgoolga to Ballina highway upgrade , costs $4.9 billion, or just $31 million per kilometre (approximately 11 times less than WestConnex, and 29 times less than the West Gate Tunnel, on a “per lane” basis).

Adding nearly a Canberra-worth of population to Australia each and every year – with 90,000 to 110,000 people projected for Sydney and Melbourne alone – requires an incredible amount of investment just to keep up. This explains why Australia’s infrastructure deficit has fallen so badly behind over the past 15 years, and why infrastructure deficits will continue to grow under the mass immigration ‘Big Australia’ policy, in turn eroding residents’ living standards.

The cold hard truth is that the quantity of infrastructure investment required for a ‘Big Australia’ is mind boggling and impossible to meet.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Comments

  1. A lecturer once told us, “Tunnelling projects are fascinating work, very rewarding and a great way to develop your technical skills. You should try and get involved in at least one during your career, as long as you’re prepared to spend the following 10 years in court.”

  2. Nice to see a QLD project sitting in first place for most outrageous cost. In fact, 3 in the Top 5 – go you good thing!

    Politics is to blame … and regulation … and health n safety … and a million things unrelated to the actual building of the thing. We could easily just ship in an army of vibrants and they could dig those tunnels using tea-spoons. The cost would be a fraction of what the taxpayer had to fork out. But no …

  3. DingwallMEMBER

    Imagine if we didn’t have 377 middlemen taking their piece of the action and politicians who worked for Australia not themselves………..

  4. A number of the tunnelers are cowboys are barely know what they are doing…

    I say this from experience, and the experience of a number of my colleagues – sheesh.

  5. This year and next, Treasury is demanding 270K net migration, the second highest tally in history. Clearly, they are not on Australia’s side, and somebody should be asking some questions.

    Such is the iron grip of the Big Australia lobby, the open-borders progressives, that no questions are permitted, and none will be asked. And certainly not by he Home Affairs shadow, Kristina ‘Look at Me’ Keneally.

    • Some cvnt needs to get fired for that. But then again, Turnbull gave away 400mill and nothing happened.

  6. Elon Musk is launching the Boring company in the mainland. I guess it’s difficult to get him to launch it in the farthest province of Manchuria, I.e. Babyboomerangia 😁

  7. The rorting of Australian Standards is a major contributor to cost. Standards are expensive to buy. Certification is expensive to achieve and a chronic rort full of ticket clippers and rent seekers – looking at you EA, AIA, HIA, MBA, Prop Council, all worse than the fluro Unions on their worst day. Add in the golden ticket uni degrees, red tape, green tape, black tape, old tape… cost of compliance and you’ve got a big chunk of change in each project before the lawyers even get started with their fangs. Don’t get me started on Govt landbanks, box tickers and councils…