High costs of construction threaten Queensland's industry, developer claims

Construction costs in Queensland are rising as building approvals plummet, which economists and property industry experts say is a recipe for disaster for the state’s struggling economy and has almost scared off developers completely.

Economist Michael Matusik recently published research which showed a 5 per cent rise in construction costs for the sunshine state, the highest in the country.

“I think Queensland’s in for a tough period of time,” he said. “It’s at its market peak in terms of price growth, so the volumes are starting to decline.”

The closest was NSW at 4.8 per cent, but Mr Matusik said high construction costs were more easily offset by a seemingly unstoppable property market.

He inferred Queensland’s economy was on borrowed time. “A lot of Queensland’s economy went from a mining boom to a construction boom. Also just the economics of the place is based on people building things, and that’s just not sustainable.”

Domain Group data showed in the first six months of last year, there were 1303 unit approvals in Fortitude Valley. In the same period this year, there were 321 and it was a similar story in other inner city suburbs. 

“Someone rang me the other day telling me how much construction has picked up, but the numbers don’t show that all. There’s also a rise in the number of buildings not commenced,” Mr Matusik said. “That reflects that overbuilding.”

Speaking on Tuesday at a media event at his almost completed development in Fortitude Valley, FV Flatiron, developer Tim Gurner said overbuilding was to blame for uncertainty in the market because Brisbane’s construction industry was ill-equipped to cope with increased demand.

“The unfortunate thing in Brisbane is they’re a really small labour market and the trade base is really small,” he said. “The problem was for builders 18 months ago – they were getting a huge amount of tenders in, they all thought ‘I’ll put my prices up’. Unfortunately it was really short sighted.”

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Mr Gurner felt the pinch when gearing up for construction on the third tower in the FV Flatiron precinct.

“Our third tower is 45 per cent higher on rates per metre. That is insane growth,” he said. “I’ve never seen anything like it. We allowed for 15 per cent, we’re $40 million over budget.”

The consequence? Developers will take their money elsewhere.

“It’s stopped all development. You can’t get anything to work in Brisbane right now,” Mr Gurner said. “It’s way too expensive. There’s 130 cranes in the sky right now and there’s meant to be 30 by this time next year.

“These cranes aren’t going back up.”

Mr Matusik agreed construction would dwindle in Brisbane.

“Those cranes won’t move to the next block, they’ll just go somewhere else,” he said. “Many in the construction industry, they’ll need work elsewhere.

“They’re already being sent to Melbourne and Sydney.”

However, Mr Matusik said risk-taking in the sector was partially to blame.

“The risk is can the developer sell the things? The houses, units, townhouse, commercial spaces?” he said. “Can they sell those things and enough of them so they can actually deliver the product and make the profit? This is where it’s shaky at the moment.”