We don't need more housing targets, we need more tradies

A bidding war for construction labour risks more inflation

Apologies for the radio silence. Six weeks ago, we welcomed the arrival of the most beautiful little baby boy. I’m subsequently down about thirty IQ points and am dropping the ball in each and every domain of my life.

Family. Friends. Relationships. These are the three demons you must slay if you want to write a blog that nobody reads.

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I don't know about you, but I'm am well and truly done with inflation. My inflation days are over. That was the old me. I have moved on. My mortgage is huge. My grocery bill is huge. I am too ashamed to tell you how big my summer electricity bill was. My supposedly "fixed contract" mobile bill has gone up twice in 2 years. Please inflation, no more. Uncle. Uncle!

To once again be the bearer of bad news: I believe we are recklessly careening towards yet more inflation, at least in a way that is focused in the already massively overinflated construction sector. Bad news for any dwindling hopes we may have had for new market rate housing being anywhere approaching affordable - whatever that even means in 2024.

Australia - we just keep on winning.

We wish Albo well in all his endeavours.

The housing targets keep coming

Who doesn't love a good announcement? They just feel good.

1.2 million new homes by 2029? Why the bloody hell not? We could even bump it up to 1.5 - a more satisfying number. Either way, we're doing stuff, folks. Big stuff. You're gonna love it.

Many have already scoffed at this target so I won't belabour the point, but suffice to say, on the topic of how the Federales plan to deliver on this target: detail is pending.

The problem being that building 1.2 million homes in the next five years is not like announcing you’re going to print a new lanyard for every boffin in Canberra. Many stars need to align to realise that target, and making sure we have enough construction labour is a big one.

The labour shortage reigns undefeated

As I argued last year, we are in the throes of a worsening labour shortage, the implications of which for the housing crisis are dire.

But when factoring in these new 2029 targets, the problem looks even worse. BuildSkills Australia recently raised the alarm that an eye-watering 90,000 more workers are needed in the building industry if the government is to meet its target of 1.2 million new homes by 2029. That’s a very large stadium full of beautiful boys and girls in high-vis missing from our economy (and our hearts) right now.

Construction costs are now absurdly high, with some analysts predicting that this will leave housing completions well below target until the next decade.

While the CFMEU reigns supreme

To put a cherry on top, the Construction, Forestry and Maritime Employees Union (CFMEU) just inked a deal with the Queensland State Government for a range of improvements to construction worker pay and conditions on major government funded projects. Some have estimated this will increase building costs up to 20 per cent, while Brisbane already ranks amongst the highest construction costs in the country, with a 14.4% increase in 2022.

On top of periodic pay rises, it includes a range of generous perks and 57 days off per year (including public holidays).

Who knows, maybe the improved pay and conditions will help entice people into the workforce over the long term. But for now, these better wages, perks and conditions will undoubtedly attract workers away from housing projects and into major government funded projects. Housing developers may be forced to offer similar conditions to keep projects moving.

But wait, there's more... inflation

The housing crisis is such a bastard of a problem because it has this way of spilling over into other seemingly unrelated areas and making other seemingly unrelated problems worse. We see this in declining birth rates, reduced savings and disposable income and to the topic of the day: inflation.

We are at full employment

If you're in a situation where there's high unemployment, public spending is great policy. It puts unemployed people to work on making the stuff we need, creating long term gains for the community and generating economic activity, while reducing unemployment - Keynesian-style!

But that's not where we are. We're basically at full employment, which changes the equation.

Full employment means that almost all the people who want a job, already have a job. Because we're at full employment, most tradies already have plenty of work in the pipeline. Have you tried to get anything tradie-adjacent done lately? Does "We're booked ‘til at least next year" sound familiar?

What could be bad about that? People are working! Levers are being pulled! Lunch pails are being packed! Steam whistles are blowing! And it’s great that people have jobs, but problems start to arise when you try to build beyond the actual physical production limits of the economy, and that's where we are today.

*Lute music plays*

You are a blacksmith

Imagine you are a feudal blacksmith with 2 half-decent apprentices… M'lord.

On a good day you and your team are able to pump out 3 pickaxes. You could produce more if you took on additional apprentices, but alas, the plague swept through a few years ago and took out a third of the peasantry. So hard to find good blacksmiths these days! Forsooth! At least the traffic improved.

Suddenly, the King declares war on Spain. Your liege lord has demanded that you drop everything and produce 500 breastplates per month for the foreseeable future.

You try to explain that you would need at least 15 somewhat experienced blacksmiths to meet such a target, but your lord’s not in a listening mood. "Just get it done" he says (feudally).

So you get creative. You do a lap of the neighbouring villages in the region, offering absurdly generous salaries to entice workers away from neighbouring blacksmiths. You manage to hire 10 more apprentices, which allows you to produce 350 breastplates per month at an enormous expense, due to the higher wages of your new workers.

Your lord isn’t happy about the price point, but he has done his duty to his King, so ultimately, he is pleased with your resourcefulness. +10 Gold! +10 Charisma!

All of a sudden the King rides into town looking red and inflamed like a honey glazed ham. He is so mad.

Because you headhunted half the blacksmiths in the region, now all the King has is incredibly expensive breastplates instead of critically important swords, maces, arrowheads and spears. And he should be upset. After all, he’s not gonna beat the Spanish with breastplates.

Your lord blames you (typical), and you are sentenced to be executed by beheading. As you mount the chopping block, you deliver your final words: "We spent beyond the productive capacity of the econo-*thud*

Spending during a labour shortage doesn't create more tradies

As I have written previously, we have a labour shortage, in the context of a housing crisis, combined with massive population growth, and a historic pipeline of major projects, with $71.3 billion slated for Queensland alone.

What this means in simple terms is that we have massively increased the backlog of projects to be done, without proportionally increasing our capacity to build them.

Just as the King declaring war did not increase the blacksmith’s ability to produce breastplates, 10s of billions in project announcements and millions in housing targets doesn't create more tradies.

So we don’t need more projects, we need more tradies so we can do more projects.

New apprenticeships are declining

Yet in this time of great and pressing need, the number of new apprenticeships is decreasing. Here, I defer to Master Builders Australia CEO, Denita Wawn:

“Over the year to September 2023, a total of 42,333 new apprentices started in the building and construction industry. This represents an appalling 25 per cent reduction on the previous 12-month period.

“The number of apprentices in training in building and construction has decreased since September 2022, when there were 124,120 apprentices in training, to 120,881 in September 2023 (-3 per cent).

“Over the year to September 2023, a total of 21,814 construction apprentices completed their training. This represents a sharp reduction (-7.9 per cent) on a year earlier."

So we’re in this situation where the present day housing crisis, exacerbated by population growth is driving up demand for new housing. Yet in our time of need, construction activity and the number of new apprenticeships is actually decreasing.

As if that wasn’t bad enough, these trends are converging on an era of historic infrastructure spending and the lead up to the 2032 Olympics - a period where we will need significantly more labour than normal.

Spending during a labour shortage creates a bidding war for tradies

Public investment in infrastructure is fantastic when there's idle capacity in the market, but at our current state of full employment, spending beyond the market's ability to deliver more projects will just divert labour from one place (much needed housing) to another (much needed infrastructure) at a higher and higher premium.

In this context, there is a real risk that because of the labour shortage, the next decade of major infrastructure spending will create a bidding war for construction workers that will inflate housing construction costs further still.

If we decide to import the labour, where are they going to live? Quite the pickle!

For the housing crisis, this is some kind of demonic, abominable Frankensteining of a fly in the ointment, an elephant in the room and a turd in the punchbowl. The horror. *sips punch*

In this environment:

• We cannot expect construction costs to normalise in the context of a labour shortage, which will continue to place upwards pressure on the cost of new builds.

• We cannot expect the capacity of the private sector to increase and build more new supply than we currently do, when the pool of buyers who can afford a new build gets smaller every year.

• We certainly cannot expect the private sector to deliver housing that is considered "affordable" in the context of said labour shortage.

• We cannot expect this to improve in the context of historic infrastructure spending, which will entice tradies away from housing projects.

To a certain extent, the effects of this are already here. We are already increasingly seeing new developments being designed and marketed towards the high-end / luxury market, as these are increasingly the only bankable customers left.

Can cyborgs join the CFMEU or are they scabs?

How do we make more tradies?

If 10% of the time, money and oxygen spent on inclusionary zoning and wagging fingers at Airbnb was instead being spent on some kind of robot tradie factory, we'd be in much better shape.

But in absence of such innovations, this is really above my paygrade, so I defer to Master Builders Australia's recommendations in their Finding Australia's Missing Tradies pre-budget submission:

• Provide access to English language education to help migrants upskill, noting that this will also assist them if seeking permanent residency.

• Provide simpler and more accessible coaching for migrants on how to find a job in the industry – the higher education space is an example of success in providing support to international students.

• Allow migrant workers to access financial subsidies to complete trade apprenticeships.

• Subsidise the cost of upskilling or training to fill any skills or qualification gap that might exist between the migrant’s home qualification and the Australian requirements.

• Ensure pathways to permanent residency are clear and enticing for skilled migrants already in the country who have building and construction qualifications and experience. Fast-track these people to permanent residency if they are working in building and construction.

• Expand eligibility for the graduate visa and graduate visa extension to all Australian Qualifications Framework Certificate III and above qualifications.

• Work with state and territory governments to streamline occupational licensing requirements and ensure internationally comparable qualifications or requirements are quickly recognised without the need for long skills recognition processes.

Recognise existing migrant qualifications

On that last point, there is apparently an estimated 35,000 skilled workers from overseas currently employed in Australia below their expertise. Recognising foreign qualifications currently involves a process that burdens skilled workers with fees of up to $10,000 and waits of up to 18 months. Expediting that seems like a relatively simple and effective way to get an easy win here - and not just in the construction industry.

Please bro… just one more lane

Stop spending on road infrastructure

This could be its own article, but money for new roads and enlarging existing roads always seems to materialise out of nowhere, while the funding and delivery of public transport projects face endless hurdles.

I subscribe to the theory of Induced Demand, which basically just points out the uncontroversial fact that when it comes to roads, if you build it, they will come - or in other words, if you make the road network amazing, more people are incentivised to use the road network. Then, because more people are driving everywhere, traffic gets bad again, which creates the rationale for more investment in the road network - and so on and so forth. It’s like trying to cure a heroin addiction with more heroin, and as your doctor, I do not advise it.

The external impact of this is that when you improve the experience of using the road network, less people use public transport, which leads to less investment in public transport, which leads to less people using public transport - and so on and so forth.

All this is to say that, if we have to cancel big infrastructure projects, please let them be road projects. We can already drive everywhere, and we don’t have enough housing. We’ve tried adding lanes, and it didn’t fix the traffic.

Subsidise apprenticeships to make them more attractive

I'd like to see much more government support for apprenticeships to entice people into the workforce. Back in the day, teachers actually got paid to do a teaching degree because we were trying to incentivise people to become teachers. If we need tradies so badly, maybe we should act like it.

Make it less impossible to change careers

I personally have several friends who would love to change careers into a trade, but are trapped in their current jobs due to massive mortgages - yet another negative externality of the housing crisis. If we need tradies (we do) and there are people who want to become tradies (there are), then we could help them do that.

As always, I am here to remind you that Better Things Are Possible.