Without some sanity in wages, we will not be able to build for the future.

For me, the penny dropped in the 2010 state election campaign. John Brumby pledged to replace the level crossing at St Albans with an underpass. Treasury put the cost at $165 million – for one underpass.

Melbourne has 175 level crossings. Most are on main roads. Andrew McLeod, former CEO of the Committee for Melbourne, warned that unless they go underground, the inevitable expansion of peak-hour train services in future will shut down those roads in peak hours. And 175 times $165 million is almost $30 billion.

Melbourne’s population has doubled in the past 50 years, and is on track to double again in the next 50. To house it, we will need to build more than a million new dwellings. If they are to be, as the Grattan Institute puts it, ”the housing we’d choose”, most will be apartments, units and semi-detached homes in existing suburbs. We will build up.

If such a city is to be liveable, it will need to build a metro. It will need new freeways, wider roads and new infrastructure of all kinds. We will have to build, build, build.

But how can we build all this if it costs $165 million to replace one level crossing? Our construction costs, according to the Business Council of Australia, are now 40 per cent higher than those in the US, let alone in Asia. Construction costs in the past decade grew twice as fast as inflation.

Folks, we have a big problem. As Premier Ted Baillieu put it last week: ”Escalating construction costs are pricing us out of infrastructure.”

We pay for the infrastructure. We suffer if the housing we’d choose is unaffordable, or is not built because it would cost more than buyers can afford to pay, or if the infrastructure we need is not built because it costs too much.

We suffer if building costs are out of control. That is why we should welcome the Baillieu government’s moves to try to bring them under control.

Two weeks ago, it introduced a construction code for state projects, aimed at achieving ”behavioural change on Victorian building sites”, and stamping out the union rorts that made the Wonthaggi desal plant a $700 million loser for its builders.

The code requires builders with state contracts to enforce the law on right of entry and freedom of association, and ban strike pay and over-award payments. Nigel Hadgkiss, former deputy head of the Australian Building and Construction Commission (ABCC), will head a team enforcing it.

Last week, Baillieu got Julia Gillard to agree to a Productivity Commission inquiry into why Australia’s construction costs are so high. Former ACTU president Martin Ferguson, now Minister for Resources and Energy, recently voiced alarm over Australia’s declining construction productivity and ”significant cost increases”, including a 24 per cent slump in productivity at one firm.

No one pretends that there is only one problem to fix. But one problem must be fixed if infrastructure and medium-rise housing are to be affordable.

The culture of Victorian building sites must become productive – and not, as at Wonthaggi, one of extorting wages and perks that are out of line with those of the workers who pay the bill.

Construction consultants Napier and Blakeley report that on building sites general labourers cost $75 an hour – including overheads – and high-value tradesmen $85 an hour. They work 36-hour weeks, receive 26 rostered days off on top of normal leave, and when it’s wet or hot, they walk off on full pay. And they’ve just won a pay rise of 27 per cent over four years – with no trade-off to lift productivity.

Why do builders give in? John Lloyd, former head of the ABCC, now with the Institute of Public Affairs, says it’s partly the nature of the industry, and partly that some builders hope that it will secure workplace harmony – often in vain.

”Contractors bear the risk and face the penalties if a project goes over schedule,” Lloyd says. ”They operate on small margins, so they become vulnerable to industrial action and delays.” In the short term, it’s in their interests to give in.

What sort of industrial action? Industry sources say it includes go-slows, raising phoney concerns about safety, interrupting concrete pours, even sabotage. Once a contractor has been burnt by these tactics, the hint of a repeat can induce compliance.

Developers say the ABCC, set up by the Howard government with sweeping powers, brought countervailing power to building sites. ”The unions pulled their heads in,” says one. ”And since they faced heavy penalties, contractors became more frightened of the ABCC than of the unions.”

But Gillard is replacing the commission as watchdog with what Master Builders chief Brian Welch calls ”a chihuahua brigade” from Fair Work Australia, with neutered powers.

The state ALP’s industrial relations spokesman, Tim Pallas, says he is not convinced there is a problem with the culture on building sites, and if there were, it should be dealt with by an industry roundtable to try to win consensus.

But there is no consensus. Lloyd says the solution is to keep a cop on the beat for 15 years, until union leaders accept that the old ways won’t work. This will be a long war.

Written by Tim Colebatch – Economics Editor
Displayed on Brisbane Times.com.au April 17, 2012