'Long term health' of construction sector under threat as risky practice continues, Arcadis' Matthew Mackey warns
Builders across the nation continue to take on risks as limited potential work forces them to take action that could hurt the long-term health of the sector, new research has revealed.
The latest report from consultancy Arcadis showed construction costs continue to soar in Australia as severe labour shortages and high insolvency rates plague the nation.
Arcadis' executive director of cost and commercial management Matthew Mackey said contractors in some states where work opportunities had slowed down were taking more risks.
Fixed-price contracts contributed to the rise of building insolvencies during and after the pandemic when costs ballooned.
'I would like to say that fixed price contracts are not as prevalent as they were. That would be lying though,' Mr Mackey said on Sky News' Business Now.
'We are seeing a change in attitudes in some states.
'Where workload has been picking up, clients have been more willing to look at collaborative-based-type contracts and look at rise and fall mechanisms to cover cost increases for certain materials.
'In other states, where there's been a bit of a contraction in terms of potential work opportunities, they're certainly moving back to more risk-based and more fixed price type contracts, which is not necessarily good for the long-term health of the sector.'
The pipeline of work in New South Wales and Victoria has fallen compared to the states' respective booms over the past 10-15 years.
Arcadis' report says persistent capacity constraints will plague Sydney's housing market, while a subdued private sector in Melbourne will limit future growth in Victoria.
Mr Mackey said the rise in housing development was shifting to the nation's smaller cities amid Sydney and Melbourne's drop.
'We are seeing that shift now over towards Western Australia and Queensland, and Brisbane and Perth in particular,' he said.
'Perth has been extremely busy over the last couple of years.
'Costs in 2024 alone in Perth went up by about 11 per cent which shows the buoyancy of that market and how busy that market is.'
Mr Mackey also noted the soaring materials costs from the pandemic had 'largely abated' throughout 2024 and the start of 2025, however, Aussies can still expect price hikes down the track.
Melbourne prices are forecast to rise by 25.5 per cent between 2025-29, while Sydney prices are expected to jump 27.9 per cent over 2024-29.
Costs in Brisbane are also expected to soar as the Queensland government begins its Olympic infrastructure program.
Arcadis' report also warned Labor's $10 billion housing fund and expanded help-to-buy scheme could inject fresh demand that outpaces supply.
"The ability to deliver on their agenda rests on the sector's capacity to overcome supply constraints, adapt to regulatory changes, and innovate in project delivery," Arcadis said.
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