“Canary down the inflationary coalmine”: Government support needed to shield construction, industry group says

The federal government should use all the tools at its disposal to shield the construction sector from inflationary pressures, Master Builders Australia says, as policymakers balance calls for industry support against the need to curb runaway price growth.

On Tuesday, the Reserve Bank of Australia hiked the cash rate target by 50 basis points to 0.85%, declaring such a significant leap was necessary to cool the red-hot economy and slow spending on high-demand commodities and services.

Those goods include raw materials in the construction sector, which have exploded in price over the past year through a mix of high demand and low supply.

At the same time, many construction firms are struggling to find qualified labour, restricting the pace at which they can compete a backlog of projects and lifting the wage bills needed to retain talent.

Constructors are battling to make good on fixed-price contracts signed before those prices skyrocketed, pushing many firms to the brink.

But rising interest rates present a conundrum for those very constructors.

Tapering demand may give builders breathing room on the projects they have underway today; however, higher interest rates mean more expensive mortgages, potentially deterring new home buyers in the months ahead.

“Inflation hurts everyone in the economy and so we understand the rationale behind today’s substantial interest rate rise,” said Denita Wawn CEO of Master Builders Australia.

“However, while there is a need to temper the economy to tackle inflation there is also a need to maintain economic growth so that building and construction activity is not depressed.”

Construction has been the “canary down the inflationary coalmine”, she says.

It is now on Canberra to use “both fiscal and monetary policy levers”, Wawn added, suggesting further government financial support for the sector will see it through the inflation crisis.

New fiscal and monetary policy measures to prop up the sector might be a tall order, if statements from Treasurer Jim Chalmers are anything to go by.

Labor has inherited a “dire” budget situation from the Coalition government, Chalmers said after taking office, suggesting the new federal government will think very carefully before assigning taxpayer funds to hard-hit industries.

Housing Minister Julie Collins yesterday revealed the Labor government will expand the Home Guarantee Scheme by some 50,000 places, allowing more homebuyers to acquire a property with a deposit of as little as 5%.

But a return to homebuilder-like policies would only exacerbate the same inflationary pressures the sector is fighting, too, limiting the tools the government could use to encourage investment in the construction sector.

With that catch-22 in mind, Wawn said the federal government could consider cutting red tape around land supply and building regulation.