Event: Denita Wawn interview with Andrew Geoghegan, Ausbiz
Date: Wednesday, 10 May 2023, 1.30pm AEST
Speakers: Andrew Geoghegan, host Ausbiz; Denita Wawn, CEO Master Builders Australia
Topics: Federal budget, inflation, productivity
Andrew Geoghegan, host Ausbiz: Alright, now, back to the Budget. We have heard from industry leaders saying it tinkers around the edges but has failed to boost the big picture productivity. Denita Wawn joining us from the Master Builders Association. Denita, very good to catch up with you again. Now this has become a common theme of criticism, we didn’t hear about productivity in the budget document. What’s your takeout?
Denita Wawn, CEO Master Builders Australia: Yeah, really disappointing Andrew that there was a focus on cost of living. We understand the reasons for that. But there wasn’t a corresponding focus on the cost of doing business. And we know that if we are going to get through these fragile times in our economy that we know we are in and facing, we are going to need productivity boosts and we are going to need to see in part the cost of doing business. And I look at our membership, 450,000 businesses across the country, 99 per cent of them are small to medium-sized businesses. They are looking at ways to reduce costs, they are looking at ways of ensuring that they can pick up productivity, and maintain full employment. So it was really disappointing and you can coincide that with the planned industrial relations laws at the end of the year that will curtail the capacity for greater flexibility then we are in all sorts of trouble as business, certainly in our sector but also the broader economy.
Glen: Denita, let’s look specifically at what’s going on in the housing industry at the moment. Of course, we do have a severe shortfall as far as supply is concerned. And immigration is increasing at the same time so there’s even more pressure for building there. What did you see in the budget that may help alleviate that problem?
Denita: Look there’s a couple of positives that I think we need to recognise and commend the Minister for Housing for. The commitment that they’ve already previously made for the social and affordable housing, the recently announced build-to-rent incentives that will see a potential for greater investment in the build-to-rent market. But that really is, as you say, tinkering around the edges of this housing crisis. The housing crisis will only be resolved if we focus and resolve the supply issues that are predominantly the purview of state, territory and local government. But the federal government has a role to play and that is to facilitate change and they have got a huge opportunity with financial levers to put pressure on the states to ensure that we get productivity gains in the housing market. And we were disappointed that there was an acknowledgement of the Housing Accord that seeks to achieve that but no dollars attached to it. And we would have liked to have seen some more dollars attached. We know that they are trying to do agreements for state and territory governments at the moment but we would have thought some greater incentives in that space to create greater flexibility to
ensure that we resolve those supply issues could have been announced last night in the budget. So we are still waiting to see what opportunities the feds can play in incentivising the governments to ensure that we have better planning, greater amount of land, and a reduction in developer charges.
Glen: So is nothing done, I guess, to drive innovation around housing and infrastructure planning? There’s not. There’s a lot of talk at the moment by all levels of government but we are yet to see some action. Certainly, we commend some of the work that has been done in Western Australia by the McGowan Government. They have really set the pace when it comes to planning, innovation and enabling a greater look at housing by including the use of medium-density and so forth. But we need more action, more quickly, if we’re going to resolve this crisis. And if you look at the migration numbers that were announced last night, we need more people in this country to actually undertake the building. But equally it puts greater pressure on our housing needs. So we need some action fast and we’re concerned that we’ve now been waiting over six months for action and still waiting.
Glen: Denita, I’m sure you would have seen that article in the Fin Review today talking about the… it’s labelled the grimmest in 45 years just in terms of building collapses at this point. That was the quote from Robert Lynch the chairman of Tamawood. It appears to be worsening. Every day we see stories of builders collapsing. Obviously, as inflation impacts there. You’ve got those labour constraints at the same time. What needs to be done to prevent this from happening further?
Denita: Well, I think it’s really interesting in that we’ve seen a situation that unfortunately we’ve forecast. In our sector, we see a greater number of insolvencies during boom times rather than bust times. Our builders have been stuck with fixed-price contracts signed well before the inflationary impacts whether it be labour shortages and so forth. So a lot of building activity but no money to be made, if not a lot of losses, and as a consequence, insolvencies. There needs to be a greater discussion about risk-sharing in this country. In terms of how we look at building for our communities. In many instances, there is a requirement by either legislation or the client or the bank that we have fixed-price contracts with no exceptions including no escalation clauses when we’ve got costs that are at no fault of the builder. So we need to have a greater discussion around risk-sharing. Invite all of those including the client and the bank and the builder rather than the builder being left to carry the can of escalation of costs. So certainly we think there’s an opportunity for government where there are highly restrictive in their fixed-price contracts for residential to look at certain exceptions. That occurs in some states but not others. But equally, state governments and federal government and large clients also need to consider how they are contracting with their builder and ensuring that there is adequate risk-sharing across the board. That then also helps them in terms of greater insurance coverage of builders and so forth. It’s unfortunate this has happened, we expected it because of high inflationary costs and we certainly need to look at how we improve it. Equally, as Master Builders we are looking at how we can encourage more of
our members to implement best business practices. There was a provision in last night’s budget around digital uptake of SMEs. We’re the lowest of all industries in terms of digital uptake. And certainly, we’re speaking to providers as we speak in ensuring that we can promote the best of the best in terms of the way to utilise those platforms to make business a little bit easier.
Glen: Labour has been one of the problems that builders have been facing. Denita, what do you see are the outcomes of that rapid lift in the immigration rate? I mean it does put pressure on that housing supply that we’ve spoken of but it also will increase the level of skilled workers coming into the country as well. Is that going to help out?
Denita: Absolutely. We were indicating and have estimated that our industry alone needs around about 480,000 new entrants by 2026. That’s a huge number and that is because we are losing people to retirements and so forth. We need a large number of people as the industry is going to see a downturn in 2024 but we are forecasting back into a positive territory from 2025 onwards. So we’ve got about 12-18 months to resolve the labour shortage issue. We of course want to see more Australians working in the industry but equally, we are also reliant on migration. So it is really good that the government has created more flexibility for skilled migrants into this country and certainly we ould encourage a greater number of trade qualified as well as professionally qualified. That’s really important but equally we cannot forget we need to train more Australians to work in our industry and that includes women as well.
Glen: Denita Wawn, chief executive at Master Builders. Great to get your view. Thanks for joining us.
Denita: Thanks, Andrew.
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