This episode was recorded on the land of the Wurundjeri people of the Kulin nation. We pay our respects to their elders past, present, and future.
Richard: Hello and welcome to another episode of Precisely Property I’m your host, Richard Temlett. I’m excited to have you with us today. If you’re here for the first time, thank you for joining us. I encourage you to listen to our previous episodes where we discuss all things property with a focus on dynamic discussions with industry leaders. In this episode, we’ll be discussing the cost of delivery crisis with Steve Sfendourakis. So sit back, relax, and let’s get started.
Steve is a registered Unlimited Domestic and Commercial Building Practitioner and the director of Stemcon, a building and property development company established in 2008. Stemcon specialises in multi-unit residential and mixed-use projects. With over 25 years of industry experience, Steve has worked across a wide range of complex developments, bringing a practical solutions-focused approach to every project. Steve holds a Bachelor of Civil Engineering and an Advanced Diploma in Building Design, combining technical expertise with a strong design sensibility. Coming from a family of builders, Steve continues that legacy by leading a team dedicated to quality, continuous improvements, and client-focused delivery. Welcome, Steve.
Steve: Thanks for having us, Richard. It’s good to be here.
Richard: Steve, as we were discussing offline, in today’s episode we’re going to talk about the cost of delivery crisis in Melbourne. Although I’ve been starting to see this play out across all of Australian cities, but certainly Melbourne’s the epicenter of the crisis. We’re going to talk about what’s causing it and what needs to be done to respond to it. And then finally, we’re also going to talk about both the risks and the opportunities as you see things playing out over the next 12 months.
Steve, before we get into the session, I do have an icebreaker question for you. If you weren’t in property development and construction, what career do you think you would have pursued?
Steve: Oh, look, if I had the right genetics, I’d be an AFL footballer by far. But, clearly, there’s nothing to pursue there. There’s nothing to look at there. So, I was only ever going to do property. As you mentioned, dad was a builder. All my formative years were spent pretty much on-site, so I was never going to do anything else. Whilst all my friends were footy training and playing in the streets, I was on ladders and holding nails for the old man and sweeping floors and doing those sorts of things. I’m going out on a limb here, what we did wasn’t legal, but it sort of set the tone for where I’d end up today.
Richard: Fantastic. Well, I can’t wait to hear a little bit more about that, and I’m sure I’ll ask you as we go through this episode. I am interested to know a little bit more about your background, your experience in the industry, and then Stemcon and what sets you apart.
Steve: Yeah, so what sets us apart? I believe what sets us apart is how hands on and vertically integrated we’ve become. Most builders rely heavily on third parties to meet their supply chain needs. Typically, most things are outsourced. For us, we’ve kind of gone the other way, particularly in some key areas. We’ve built-up in-house teams across disciplines such as concrete precast, and we own our own joinery business. And we have an electrical business as well. We feel this gives us a little more control than perhaps we’ve ever had before important things like quality, program, but importantly, those finer details that can sort of make or break a project. That’s pretty much been done by design. COVID helped a little bit with that, particularly when it came to the precast yard. We found ourselves in a situation where over the inflation overnight, our cost ballooned in this space. So, it was a decision that we had to make. We either sink funds into that particular space, or we treat it as an investment. And, here we are today with a precast yard producing some beautiful panels. We have a look back, it’s the best thing we’ve ever done.
Richard: Amazing. Alright, let’s jump right into this session. So, the first topic that I wanted to talk to you about is what’s happening on the ground or what happened on the ground over 2024 and now into 2025 that’s causing this cost of delivery crisis.
Steve: Yeah look, 2024 into 2025, how do we tackle this? I reckon as builders, we’ve been living and experiencing the aftershocks of what we’d probably call the perfect storm. I guess to start off, what I’m sharing with you today isn’t just drawn from my own experience, but it reflects conversations I’m having regularly with colleagues, consultants alike, and superintendents who have got a lot of touch points across the industry. And I must say particularly in the private boutique apartment space. So, it’s important to paint the right picture and to be true to my lane. It’s important to understand the scale we’re talking about here. I could really only speak as an authority to the apartment market, particularly in that $10 to $30 million construction contract value range. That’s where we live and breathe. While every team out there is different, these sentiments are coming through consistently. The way I’d sum it up is that we’re still facing the ripple effects of call it what, three pretty obvious major pressures. I know they’ve been done to death and discussed at nauseam in the industry. We’ve got cost escalation, the whole complex subject matter surrounding compliance and capacity or lack thereof. Some would say they’re just buzzwords, but it’s what’s been felt on the ground on most projects and most discussions and interviews that we’re having with subcontractors.
So first off, costs. We all know what’s happening with inflation and this constant conversation at the moment creeping in about commodity prices and have they settled. And the fact is they have. But the problem here is that the base cost of buildings just hasn’t come back to Earth. That’s because a construction cost plan, if we look at it in isolation, isn’t just about materials. It’s made up of preliminaries, which are those upfront costs and temporary works needed to manage and run a construction site. Things like site setup and supervision and insurances. And then, of course, we’ve got a section called the bill of quantities, which are primarily the material labor components that you need to erect a project.
Then you’ve got your overheads. Every business has got those requirements and if you’re lucky, builders’ margin. But most importantly, builders are probably better today, I reckon, at identifying and pricing in risk, particularly after the volatility of the last few years. No one’s absorbing uncertainty for free anymore. The cost blowouts over the last few years haven’t just evaporated. They’ve fundamentally reshaped how we price and deliver projects.
And then we come to labor. Well, that’s a big part of the story, isn’t it, Richard? And it’s important to make the distinction between, let’s call it general labor and skilled labor or skilled trades. While some broader labor costs have eased particularly regarding some commodity trades, school trades, especially, let me tell you, the very good ones, are very hard to secure. And you’re often paying more than pandemic rates for the privilege. So, we’re starting to see the sting come off some of the big infrastructure programs, which is freeing up some talent to return to the private sector. But the problem is they’re coming back with just really inflated salary expectations.
And look, I get it, no one likes to take a pay cut. But in the boutique private space, the margins aren’t there to sustain those infrastructure level salaries. I sit in on prospective candidate interviews, and it’s a constant recurring theme. There’s a real mismatch between what’s expected and what the private market can support. I constantly have these discussions with recruiters where they’ll say to me something along the lines of “look, Steve, I’ve got a really strong candidate. But I’m not sure whether I want to represent him just yet because he’s got an inflated view of what his package should be. So, I’ll let him stew over that for a little while until he comes to some realisation. And once that happens, I’m happy to recommend him. Would you be interested?”
And so that’s kind of the narrative. We talked about preliminaries a little bit. A part that dovetails into insurance premiums, which have all gone up dramatically. If we were to take the HOWI insurance, which is the Home Owners Warranty Insurance, and we looked at that policy, which is designed to cover defective and incomplete works, it’s climbed up immeasurably. We’ve got a project at the moment where we’ve just seeked out a policy. If we were sourcing that policy a couple of years ago or two, three years ago, we’d probably be around $2,500, $2,000 to $2,500 a unit. It was alarming to see that it’s actually gone up to $8,500 a unit.
Richard: Wow.
Steve: So, who pays for that? The developer. The really interesting thing about preliminaries, one thing that often gets misunderstood is that look, construction costs don’t scale up linear. Let’s take an example. We’re building either 15 apartments or 50 apartments. A lot of the key setup costs, things like site establishment, crane hire, project management, we covered insurances, are largely fixed. On a smaller project, those costs are spread over fewer dwellings, and that blows out the cost per unit. So, the lesson here is in this current cost environment, scale is a strong benefit, and it’s often the difference between a project proceeding or getting shelved. And just on that point, to make things even harder and more challenging, smaller projects still need a capability to deliver them. Most often, delivery engagement is requested by the client under a D&C contract, design and construct. Which is a project delivery method where the builder takes on both, call it the design and construction responsibilities under a single contract. And guess what the benefits of that is? It streamlines the process, giving clients one point of accountability. That means someone’s there who can manage risk, coordinate design, engage with authorities, and keep things generally moving.
But here’s the thing. The overheads to run a proper professional builder doesn’t scale down just because the project’s smaller. You still need the same systems, people, compliance, you still need the same insurances. All of that loads up, and it pushes preliminaries up quite high. So, while we’ve got these smaller projects that might look simpler on paper, and developers will say to you, “hey, that’s a pretty simple build don’t you reckon? It shouldn’t take too much to get that off the ground.” And a large part of those smaller projects are quite attractive in terms of the type of product you could possibly put out to the market. Be quite welcomed, I would have thought. The reality is that they carry very much a disproportionate cost base, and that’s where a lot of the small developments are hitting the wall. We’ve got a couple at the moment we certainly haven’t been able to get up and running. So, the challenge for the builders – you want to stay busy. You want to be operational. You need to make strategic choices. Do you scale up and chase bigger turnover and bigger projects? Therefore, you can spread your overheads or scale right down, stay lean, and off the radar, low risk.
So, there’s not much middle ground. And the space that suffers as a result is that, let’s call it $5 to $15 million construction contract value bracket. It’s a very, very difficult space. What we call the ugly middle. It’s too big for small operators with low overheads to comfortably take on. They don’t have the systems, just haven’t managed to design in the compliance or balance sheet to carry it out, and it’s way too small for the more capable builders to bother with. And when you layer in the fact that preliminaries are what they are, and we’ve discussed it now at nauseam, that just don’t scale down neatly. So, this is a big issue.
Perhaps we touch on compliance, we sort of introduced it a little bit. This one really can’t be overstated, the impact that it is having. The NCC (National Construction Code) has great expectations of the industry as each revision is now adopted. Moving from NCC 2019 to where we are now, I think it’s 2022, well we find ourselves today, this has had a big impact on cost. This is because the rules now require better energy efficiency, improved accessibility, certainly stricter fire safety. It’s just incumbent now on the builders to make really informed material selections across elements relating to the sub and superstructure, elements such as windows, steel. They’re all affected. What it means is while these changes have a really positive effect, your homes now, you can expect to be a little bit more comfortable and more efficient in the long run. They do make construction more costly upfront.
Another issue regarding compliance that we’re seeing across the industry is the increasing uncertain driven by inconsistent interpretation of the National Construction Code, so the NCC. So, the VBA (Victorian Building Authority), who’s our regulatory body, they conduct constant site audits. And more often now, they’re enforcing practices or identifying issues that were never previously flagged by the system. It’s not that they weren’t there to regulate, it’s just they haven’t been policed. A big part of the problem is that the NCC isn’t as prescriptive as it probably should be, and that is the opinion on the ground, and not just for us builders, but also the building surveyors. There’s a gray area in the code, and it’s been interpreted one way by surveyors and another way by the VBA. But the stress and the problem here is when those interpretations clash, it’s us builders left holding the bag. And, typically, it happens where we’re having to rectify issues under great duress, under really tight timelines, because typically, these things are escalated nearing occupancy permit stage and a lot of times at significant cost. So as a result, we’re now relying more and more on performance solution, and we are a performance solution led industry just to achieve compliance. But these are time consuming, and it’s very, very expensive.
So, look, it’d be great if the VBA, if they want to see better outcomes on-site, the pathway forward needs to be a lot clearer. Builders like us need more certainty and guidance upfront. We can’t leave it to this retrospective enforcement. It’s just too hard. And, look, most builders that I’ve met, we’re not afraid of doing the right thing. We just need the regulatory parties to be aligned, to know more consistently what that is. Some would say that compliance, a cynical person would say, compliance is killing momentum and slowing down innovation. Think about it from a business standpoint, you’re trying something new and knowing how long it takes to tick all the boxes. Are you demotivated? That’s probably a question for someone else to answer.
Staying on topic, what we’re also seeing, some structural reforms coming through. I’m not sure if you’re across that, Richard.
Richard: I am yes.
Steve: There are proposed building plumbing commission amalgamation that’s set to bring multiple bodies under this one roof. I think this is quite profound. Again, not my area, I’d leave it to subject matter experts to tell us the impact that this is likely to have. But all I will say is we’re going to be watching very, very closely to see what the outcome of that is. But talk of the town is, when these things tend to happen there tends to be an introduction of more levies. But we’ll have to wait and see.
So, we’ve touched on compliance. Perhaps we touch on capacity. Personally, I’m very committed to the multi residential space that we’re highlighting today. Particularly because the type of clients that we’ve got, they’re fantastic. I can’t understate that enough. I can understand why some colleagues of ours who have traditionally played in this apartment space, well, some have collapsed, but some have pivoted to safer ground. And what I mean by that, they’re either focusing now on cladding rectification programs or NDIS (National Disability Insurance Scheme) or other commercial type of work, somewhere where I imagine the margins are less compromised. And I get it’s really, really good business, but I get the feeling there is a shrinking pool of capable, confident delivery partners in this multi residential space that can handle proper D&C delivery.
And maybe we talk about the elephant in the room, which is clients’ balance sheets or developers’ balance sheets, builders’ balance sheets alike. They’ve been hit hard. There’s generally less buffer, I would say, at the moment, which is calling, consider a situation where you’ve got long delays to get things going or you’ve got major variations that you have to deal with that probably weren’t anticipated, or God forbid you’ve had developers withholding a progress claim because he hasn’t got his finance in place. I imagine that’s causing some builders to be on edge. And I know it’s happening. That risk is real. You’re seeing, therefore, more conservative deal making, and a whole lot of stress being passed down the chain to the subcontractors. I mean, someone’s got to pick up the slack. So, that can’t be great. We’re seeing apartment projects delivery times blow out as a consequence.
The other thing that happens when you’re in a fiscally stressed environment, developers have been known to be recently quite trigger happy to impose liquidated damages, and I’ll probably get into trouble for suggesting this. A lot of builders have done very well to deliver through such a crisis, and there’s been no conversation about, look thanks for getting us through. It’s been amazing. The alternative is quite bad, but let’s revert to contract. You’re slightly late, let’s trigger LDs (Liquidated Damages), which is really an interesting take and I think somewhat disappointing and shortsighted, but well within the contractual right.
What I also think there is evidence of which may be underdiscussed when you’ve got a crisis, then there’s also the mental and emotional fatigue in the industry. It’s hard to keep morale up when you feel like you’re constantly in survival mode. Right? We hear this from the trades constantly. Everyone’s cautious. Clients are cautious. Banks are always cautious. Contractors are cautious, and it’s this caution that’s slowing the whole system down. We’re operating with a handbrake on.
But look, I reckon if there’s a silver lining, and I believe there is, is that people are starting to look seriously at things like innovation. And when I say innovation, I don’t just mean new beaut’ contraptions. It’s not just tech, but it’s process, creative ways of engaging that we probably haven’t considered previously. So we see more discussion around off-site prefab and it’s getting designed more efficiently into projects. But I reckon more needs to be done in this space. And quite frankly, I don’t think us builders are the people who do it, there’s got to be other stakeholders that are best positioned to assist government. Perhaps there’s monetary policy or there’s other ways of stimulating that. You’re probably best positioned to maybe comment about these sorts of things. There seems to be a little bit of red tape around so it’s just an observation.
But, look, interestingly, we are in the middle of delivering a prefab home at the moment. It’s part of looking to be disruptive. We think there’s more that can happen in this space in terms of innovation. So, whilst we’re confronted with some firsts and some challenges with regards to what we’re currently doing, the results are pretty promising. And if we can get it right, I believe we’ll go a long way to addressing some needs in terms of supply, particularly in areas where labor resource may not be as accessible. But I probably won’t say more about that at this point. I’m waiting for all the data to come through, and it’s maybe a conversation we can pick up again.
Richard: I’d love to down the line. That sounds very exciting.
Steve: But, look, what I do notice is there is a lot of smart people doing a lot of R&D in this space, particularly in the area of modular space, modular construction. I reckon there’s never been a better time to be disruptive. The question is, in order to be disruptive, we also need the NCC to keep up. If we want real efficiency, we need to start backing innovation instead of burning it. Look, in short, on the ground, shaping as a rebuilding phase for the industry with a real focus on restoring confidence, lifting productivity. That’s got a little space to go to get some level of productivity that’s meaningful and driving reform. But I’m genuinely optimistic that improved affordability is on the horizon in our private sector. And as an industry, we certainly welcome it.
Richard: Well, thank you for that. That was an absolutely fantastic exchange of knowledge. I suppose in your opinion of things, what needs to change to alleviate the cost of delivery crisis?
Steve: Well, okay. Before we even get into specific changes, I reckon there’s a bigger conversation at play here. We need to acknowledge how do we reduce costs in an environment that’s stepping up standards, an environment that’s challenging itself to raise the bar, raise compliance and performance. We’ve already touched on how things like the NCC 2022 have escalated standards and costs respectively. An example of that would be new ESD (Environmentally Sustainable Design) mandates, like the 7 Star NatHERS requirements. Really well intentioned, but it’s added cost that the industry is looking to digest and get its head around. But maybe we should ponder the real question or a question, which isn’t just how we reduce costs, but how can we improve affordability?
Again, not an area that I’m an expert in because while these changes increase upfront construction costs, they also do bring long-term benefits. Who wouldn’t want to have a home that experiences better energy efficiency? Why wouldn’t you want to have a place that is cheaper to run and just generally more comfortable? Has all those future proof mod cons in it. With the challenges applied at some point, it can’t just be about cutting costs. It’s about finding smarter ways to deliver quality without pricing people, our kids, out of the market. So, again, we rely on and we look to government and industry and the broader economy, all need to play a part in shaping that environment through various means, whether it’s monetary policy or employment programs. That’s something they desperately need to sort out.
Staying on topic regarding what changes can influence cost, less red tape would help. We’ve got projects in delivery right now being held up by what should be really straightforward issuing of secondary consents or endorsement approvals that are dragging on and delaying building permits. The planning system is stuffed. It’s jammed. And that means long holding costs and interest costs and all those added uncertainties. Right? Don’t get me started on authorities. There’s no fast-track system for managing power and water authority headworks and communication to those departments. Those kind of delays are absolutely killing momentum, and if you’re talking about cost, they create a lot of cost. It needs to be looked at. When these things happen, it forces us to allocate contingencies just to protect ourselves from system inefficiencies. And those costs flow straight back to developers. Who could deny us that? It’s just what we need to do.
It’s worth also acknowledging that our developers are really well intended, very open to new ideas, and enthusiastically looking to incorporate innovation and keep costs down for new projects. You can understand their motivation. Developers, they generally want the latest green systems, smart tech, and design features that elevate their developments. Obviously, trying to keep the cost down. But when we receive from them a PPR (Principal Project Requirements), or a principal project briefing and undertake a deep dive into formulating a comprehensive cost plan for that brief, reality hits in. Suddenly, that wish list starts getting trimmed back. In our industry, I reckon this is a real problem. It’s a step where things can go very, very wrong if that trimming process, which is what we call value management or value engineering, if that responsibility finds its way into the wrong hands. I’d like to think and the feedback suggests that a big part of what we do at Stemcon is bringing strong design management capabilities to the table. If I may squeeze in some marketing or take the opportunity. I know there’s a lot of good builders out there that do great work in this space. We’re not alone. But I’m a believer in the more investment you make in the design phase, the better the outcomes. That’s 101 project management. Right? Our in-house teams are skilled at navigating that critical space between design ambition and project reality. Especially when it comes to the importance of what we just talked about, the whole big area of value management. And by value management, I don’t mean cutting corners. It’s about working closely with the client and consultant teams to identify really smart, fit for purpose substitutions that retain design intent. They obviously have to meet compliance and naturally have to maintain quality. Thats genuinely a really long process. It takes time, takes skill, but it also requires trust and a collaborative mindset. And, look, that’s got to be carried through the whole design phase. So, these are the benefits when you’re engaged early. You can generally guide decisions with practical, real-world input. That’s where real value can be found, not just in savings for the sake of it, but it’s in smoother delivery, fewer clashes, fewer surprises, and generally, better outcomes. But this is the thing. For that approach to actually work, for innovation and value engineering to deliver real outcomes, the contract structure has to support it. You can’t build smarter if the procurement model is rigid or one-sided. When I say procurement model, I mean a construction, a contract arrangement.
So, that brings us to the other issue. The way we contract in this industry, I believe, is still out of step with the environment we’re in. I’m really passionate about this. Right now, construction contracts still favor certainty over innovation. And what do I mean by that? Your client will say to you – “I want everything. I want you to price the building. I want a fixed price. I want certainty. I want you to consider everything. I want you to take the design risks. I want you to take full risks.” Which is fine, and we can handle this. But there are other ways. We’re being asked to price for worst-case scenarios and carry the financial and delivery burden all the way through. It’s a system that sometimes prioritises shifting risk rather than resolving problems, which like I said, is not a problem if the market is prepared to pay for it. But we’re talking about cutting costs. So, if we want to unlock value and integrate more building innovation, we need to rethink how we engage. That doesn’t mean moving to a cost-plus contract, which again, puts a lot of the onus and risk onto the developer. There’s no discussion here about abandoning accountability. It just means building fairer, finding ways to build smarter contractual frameworks that create the right environment for good and fair delivery.
Some of the things that have been discussed with our developers and have been done in the past, models that share risk across builder, developer, and consultant. There’s the consideration of rewarding the builder if they brought things on time and the cost and quality outcomes, which the question then is how do you measure that? Promote level of transparency through open book methods for some portions of the contract. Perhaps encourage long-term value, not short-term savings, and there’s got to be something in it for the developer in that instance.
But there’s also the opportunity to improve cash flow flexibility to reduce risk and support delivery. That’s not a dirty word. Everything has a cost. Cash flow is oxygen on a live project. Developers who release early deposits, for example, or look after long lead items like windows. Most windows are coming out of China these days with upfront costs or lifts or whether it’s joinery. I reckon that all helps lock in pricing and avoid escalation, but it requires that collaborative approach. More frequent payments perhaps, the banks need to work in with that which is something that can be fed down the line and assist smaller contractors and bring them to the table. We’re talking about a collaborative framework here. When a builder isn’t financially squeezed, you see it flow through as we just talked about. The subcontractor performance, their quality improves, less disputes down the line. Now I know it’s not for everybody, but there’s got to be a way of qualifying this. Because at the end of the day, I don’t believe design alone will fix affordability. Smarter, well-structured delivery will.
The other important thing here not to overlook is how we measure value. We need to foster a mindset of long-term thinking where success isn’t measured just by the lowest upfront price. There’s got to be a consideration for life cycle. And I’m not sure if there’s a real measure for this or an easy measure for this as opposed to just reward someone, reward the upfront cost. Many of the most significant project failures have come from decisions driven solely by immediate cost advantages without regard for future maintenance. Important things like durability, easy maintenance. It’s not just about completing a project. It’s got to be more about how well it performs over the next 10, 20, 30 years and the impact that that has on body corporates.
So, yeah, this is just about trimming fat off construction budgets in my opinion. It’s about creating the right environment for projects to find their equilibrium.
Advertisement: Quickly interrupting this episode to tell you about Charter Keck Cramer.
Charter Keck Cramer is an independent property advisory firm with offices in Melbourne, Sydney, Brisbane, and the Gold Coast. Through our collaboration with Andersen Global, we connect with over 18,000 professionals around the world. We provide strategic property advisory services spanning multiple market sectors.
Our advisory team provides specialist advice across transaction management, tenant representation and lease negotiation, strategic portfolio reviews, development advisory, and more. Complementing this, the capital division advises on structured property partnerships connecting property owners and tier one developers. Our extensive valuations coverage includes prestige residential and Greenfield development markets, together with all commercial asset classes. Quantity surveying is at the core of the projects team, ensuring cost control from planning through to post construction. And our research team delivers property data and analytics across the residential living sector, along with expertise in strategic land use planning and urban economics.
With specialists across a diversity of sectors, Charter Keck Cramer is your trusted property advisor. Now let’s get back into the episode.
Richard: Let’s shift gears a little bit. How was this all compared to 10 years ago? So, what’s really changed compared to 10 years ago?
Steve: Oh, look, 10 years ago feels like a lifetime away. But back then, there was a real sense of stability. If you got a price from a contractor, you would generally back that in that it could stick around for a while and it wouldn’t just casually inflate. Labour availability clearly wasn’t the crisis it is now. In fact, we’d had constant interest from prospective employees, knocking on our door, calling up, asking for work, from all industry backgrounds just keen to get a foot in the door. There was appeal to the industry at the time, I felt. Apprenticeship numbers seemed a bit stronger, but you might have the data on that. And the average age on-site just seemed younger. When I look at our sites these days, it appears the age is a little more senior or it’s skewed to a little more senior, which is probably not a bad thing because you do need experience in this space, it accounts for a lot. There seems to be more certainty on cost and who was available to do the work. That’s fair to say.
Compliance was not policed as rigorously, which we know isn’t necessarily a good thing. There was a great opportunity for poor quality buildings to be delivered, and there’s evidence of that. Whilst we have talked about the NCC, a lot of these improvements are there for a reason, and we accept that. Fast forward to today, and we’re operating in a much more volatile environment in comparison. Contractors are nervous about locking in pricing because cost can swing so quickly. The labuor pool is definitely shrinking. It’s older, more reluctant to take on the demands of the job. And I’m not sure on the data, but it appears to me, would it be fair to say that younger workers are not seeking construction as a career of choice? Again, I’m not an expert. I’m not an authority in that area, it would be interesting to see what that looks like.
There’s also been a real shift in the way projects are delivered. 10 years ago, manual processes were everything. We’d use paper entry for site diaries and spreadsheets and clipboards. Now that was quite standard. Today, you’re seeing the rise of tech. Building Information Modeling or BIM is used now for things like clash detection when we’re looking at coordination. Drones are taking surveying images and giving us back all that data, and there are a whole host of data dashboards that provide optics for us to be able to regulate what’s happening from a health and safety point of view and from a QA (Quality Assurance) standpoint.
But the truth is adoption is sometimes patchy. While the tools still exist, industry as a whole has, I would say, struggled to embrace the implementation because it is a little bit costly. That said, the next wave we’re welcoming, it’s coming through and it’s been largely driven by AI (Artificial Intelligence). And we’re yet to see the full effects of that. It looks very exciting to see what’s ahead of us. From documentation automation to easier predictive clash detection, there’s talk of, and we’ve seen the images of robotics and how they can help on-site, doing a lot of manual labor, and even augmented reality for on-site. There’s verification and training, which sounds amazing. So, it all has the potential to improve productivity, but the challenge will be the adoption. It’s all brilliant. Just looking out for a barrier to entry. I’m hoping for the barrier to entry not to be too high to allow these innovations to come into particularly our space, which is a smaller scale project space. We’re looking out for that.
So, there’s been some improvements, from a health and safety point of view. It’s come a long way. Also, initiatives like MATES in Construction which addresses mental health. This is a conversation we’re able to have today that we probably weren’t mature enough to have 10 years ago. And, of course, there’s a lot of talk now about sustainability which has gone from nice to have to pretty much an expectation these days. It’s also a push for more inclusion, more opportunities for women and people from diverse backgrounds, but these are still green shoots. And it’s what still is a very traditional, let’s call it slow moving sector. In short, 10 years ago, the construction game was simpler. I reckon it was more predictable. Let’s say today, it’s a bit more complex, would call it more fragmented, bit under pressure to evolve, and that’s bloody exciting, I reckon. The challenge now is whether we disrupt or keep doing what we’ve always done and risk falling further behind.
Richard: Alright. Well, let’s again shift gears further and jump into some of the risks. I think listeners know by now, I do have a background in law, and I always like to try and understand what the likely risks and then opportunities are. So, let’s talk about risks in 2025. What do you think some of the major ones are that the industry needs to be aware of?
Steve: Yeah. Risks. Look, from a builder’s perspective, the biggest risk heading into 2025 is that we could see a real pickup in private sector activity, but many builders are entering that phase with weakened balance sheets. There’s definitely more private development appetite emerging, and there’s a number of alternative funding models out there with high leverage and more flexible terms which are helping feasibility stack up. So, I’m quite confident if we see interest rates cut and government stimulus come in which often comes in with election cycles, doesn’t it? There’s always some type of stimulus that they’re spruiking, and imagine whoever gets in, they’ll be in effect. That can only add momentum.
But here’s the issue, I reckon. A lot of mid-tier builders are still in recovery mode. So as demand returns, there’s a real risk for some to overextend, perhaps taking on too much work or maybe pricing too tightly because there’s a risk. You’ve got to chase pipeline just to stay afloat. In this environment, that could be risky. It doesn’t take much to tip over a business, if it’s solely construction centric. This isn’t the year to chase volume blindly. It’s a year to double down on financial control and program discipline and forming smart and focusing on smart transparent partnerships. Because yes, the opportunity is definitely there, but if we don’t manage the risk, we’re just setting ourselves up to repeat mistakes.
Richard: Great. Well, let’s flip to the other side of the coin. Let’s talk about major opportunities for 2025 and what do you think those might be.
Steve: While there’s no doubt 2025 comes with its risks, I actually think it’s shaping up to be a year full of real opportunity, especially for builders who are structured, financially disciplined, thinking long-term, and generally investing hard into their businesses. The construction industry is on the cusp of significant transformation. We can all see it. It’s so fascinating to see what this looks like. I think it’s rapidly evolving through, we’ve touched on technology and innovation and obviously those regulatory changes for the better and a growing push for sustainability. That shift will open up new ways of working smarter. I think it’s a really exciting time to monitor this space.
Everything’s a cycle. Right? After years of volatility, the industry will settle with confidence returning, and this is something I’m quite positive. There’s a window opening up to rethink how we deliver work. We’ve talked a little bit about that and how we can be smarter, leaner with less waste. I believe, and we’ve touched on this slightly earlier, but I believe we need to be aware and open to early collaborations. I think this is the key. There’s a shift happening. Clients are starting to see the value in involving builders in early contractor involvement, ECIs, we call it. It’s no longer just a concept that’s been put aside for large scale projects. It’s been embraced more broadly. If you’re a reliable builder, you can offer design input, procurement advice, and help shape construction methodology early. If you can have that impact early on, you’ll be the ones who win more of that trusted partnership role, and it’s not just going to be led by the lowest price. Developers will be looking for reliable builder partners, not just the cheapest number, but teams who can manage complexity, whole program, and protect quality.
We’re also seeing opportunity in off-site and modular systems. Again, if we’re talking opportunities, we’ve covered this, but these are all opportunities. Builders who can build repeatable details, reduce waste wet rates, who, again, comes back to the issue of supply, or leverage premade elements. I reckon they’re going to stand out.
And finally, there’s a chance to build reputation while others rebuild balance sheets. The noise is clearing. Builders who stayed strong, who kept their commitments, and deliver through the hard yards, and difficult times are now the ones being remembered and reengaged. If you’re structured well, capitalised and still standing, 2025 is looking very strong. And I believe we sit into that category.
Richard: Well, that’s really great to hear some positivity, Steve, because as you know, there’s so much negativity going around right now. But I also do believe that the market has started to turn, and Melbourne, in particular, has been through a very difficult number of years. But in my view and what I’m seeing in the data, in the stats, also speaking with a lot of people, there’s actually a lot of upside from Melbourne moving forward. To conclude the episode, what are some of your last thoughts?
Steve: I agree, Richard. Amazing upside. It’s a very exciting time to be in the industry. If there’s one thing I’d leave people with, it’s this. Construction doesn’t need to be a battleground. The more we collaborate early, the more we share risk fairly, the better the outcomes on everything. The jobs that go well are the ones where the builder is in the room from day one, not brought in at the, let’s call it the bottom of the spreadsheet. We’ve all seen what happens when corners get cut up front. You pay for it later. So as an industry, let’s flip that. Let’s put more into planning, more into relationships, more into building the right teams, and I’m confident the rest will fall into place.
Richard: Well, that’s some great advice, some great commentary. I want to thank you very much for coming on the show today. You’re absolutely a wealth of knowledge and no doubt our listeners learned an enormous amount from you today. I will put links to your website. And, listeners, please do reach out to myself or to Steve to have a chat about either how you could work with him or even just getting advice because, I’m convinced that there is a lot of opportunity, but then also risk mitigation that needs to occur right now. Thanks, everyone, and I hope that you got a lot out of this podcast.
Hi, everyone. I hope that you enjoyed that podcast with Steve. I let him talk for a large amount of the time quite simply because he’s such a wealth of knowledge, and I wanted him to get on a run, to do a bit of a brain dump. I’m sure that a lot of what he said would have resonated with a lot of you across the industry. There were a number of takeouts that I learned, or I took out from the session with Steve, but the three that I’d like you to put to the top of your list are as follows.
I enjoyed how Steve articulated the main issues plaguing the industry right now being costs, compliance, and then also capacity. And that’s really important because there’s certain tools or levers that the government can pull under those three items to start to assist the industry with mobilising supply quicker and putting downward pressure on costs. And particularly, the one that I look at is compliance and supporting innovation and deregulation and less red tape will go a long way to getting things sped up.
Capacity is also another issue that has been done to death in terms of the capacity of the industry to deliver medium and high-density dwellings. It’s absolutely critical that we increase capacity. That is typically through immigration as well as getting people into these skills, trades and labour.
In terms of costs, I thought it was fascinating to listen to Steve’s comment about no one, being the builders, absorbing risk for free anymore. I think that’s really important. It goes back to his final comment that he made about the construction industry not needing to be a battleground and being a focus with the transfer of risk, but rather let’s collaborate, let’s share the risk, and let’s share the profit. I think, again, that’s absolutely critical with where we are in the market cycle. As the industry evolves, I’m convinced that that needs to start to occur more and more.
The final point that I’ll leave you with is the National Construction Code and I suppose the design and construct contracts or the overall building contract. I’m not entirely satisfied anymore that there’s enough scope of innovation in either the legislation or perhaps even in some of the contracts. As Steve very well-articulated, everyone wants certainty of innovation. And I can understand why that is. However, we’re so far behind where we need to be as an industry with productivity. I can’t help thinking, particularly in the legislation, if we incentivised innovation, we rewarded innovation, the industry would start to evolve, and we could make some very strong gains very quickly. Obviously, that’ll then translate to more supply being mobilised more quickly.
Anyway, those are some thoughts for today. I hope that you have a good rest of the day. Thanks very much.
Thank you very much for listening to this podcast. If you enjoyed the episode, please make sure to subscribe to our podcast so you never miss an episode as we’ve got more exciting content coming. We’d love to hear your thoughts. Please leave us a review on either Spotify or Apple Podcasts as it really helps us to grow. Also, follow us on Instagram at Precisely Property for updates and join the conversation.
If you’d like to get in touch with us, subscribe to our newsletter via our website, charterkc.com.au, or write to us at podcast@charterkc.com.au. Lastly, if you found this episode interesting, please share it with your friends and family. Thank you again for listening and stay tuned for our next episode dropping in two weeks’ time, plus bonus content also on the horizon.
Disclaimer: Precisely Property is a podcast presented by Charter Keck Cramer and is for educational purposes only. Nothing in this podcast should be taken as investment or financial advice. Please engage the services of an appropriate professional adviser to provide advice suitable to your personal circumstances. The views expressed by our podcast guests may not represent those of Charter Keck Cramer.
