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

l Background l Building Costs Comparison l Other Evidence l Effects of Productivity Gains Outline

l Report for the ABCC on Economic Analysis of Building and Construction Industry Productivity, July l 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? Background

l Objectives l Building Costs Comparison l Other Evidence l Effects of Productivity Gains Outline

l 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 l 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 Building Costs Comparison: Previous Study

l 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 l 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. This is not a like-for-like comparison. Building Costs Comparison: This Study

Building Costs Comparison: Commercial - Residential, Australia

l Historically (1994 to 2003): commercial building costs were 10.7% higher than residential building costs l This difference has reduced significantly since 2004 due to improvements in labour productivity resulting from the activities of the ABCC and the IR reforms l 2007: commercial building costs are only 1.7% higher than residential building costs l Based on a comparison of the same tasks in the same states in the same years Building Costs Comparison: Commercial - Residential Cost Gap

l Since 1994 the difference between commercial and residential costs has fallen by 9 percentage points l 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% l This result is consistent with what has happened to labour productivity at the aggregate level Building Costs Comparison: Gains in Labour Productivity

l Objectives l Building Costs Comparison l Other Evidence l Effects of Productivity Gains Outline

Other Evidence: Construction Company Views l Four case studies Two high density residential projects in QLD Two office projects in VIC l 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.

Other Evidence: Average Lost Days (per annum)

Other Evidence: Construction Productivity Measures

l Objectives l Building Costs Comparison l Other Evidence l Effects of Productivity Gains Outline

l What does a 9.4% gain in construction labour productivity mean for the Australian economy? l Econtech used its detailed MM600+ model to answer this question l MM600+ distinguishes 672 products and 8 construction categories; and models long-run or ongoing effects l Key result lower construction costs flow through to lower prices making consumers better off by around $5 billion in todays economy (or 0.8 per cent) on an annual basis Effects of Productivity Gains: Economic Modelling

Effects of Productivity Gains: Construction Industry

Effects of Productivity Gains: Australia