Victoria’s Construction Boom

Victoria is in the midst of a construction boom. In its latest forecast, Australian Construction Industry Forum (ACIF) said it expects the dollar value of work done on building and civil infrastructure construction throughout the state to come in at $52.883 billion in 2017/18. Compared with the $42.397 billion recorded as recently as 2013/14, this is up by a quarter.

Starting from December this year, four 100-metre long tunnel boring machines (TBMs) will begin arriving in Melbourne. The scale of the Melbourne Metro Tunnel project should not be underestimated. Costing around $11 billion, the development will deliver twin nine-kilometre rail tunnels from the west of the city to the south-east as part of a new Sunbury to Cranbourne and Packenham Line, five new underground stations, high capacity signalling and train/tram interchanges between the new Anzac Station and the Domain Interchange in the inner south-east.

At peak construction, around 7,000 workers will be on site. All up, around 55,000 pre-cast concrete segments will be used simply to line the tunnel. The Victorian government announced a $13.7 billion spending program for infrastructure in 2018/19.

Two will be transported to North Melbourne and two will go to the site of a soon to be constructed station at Anzac on the southern CBD fringe. There, they will be assembled, lowered into a shaft 20 metres underground and launched into the earth. From there, giant cutting heads will burrow through sand and rock at a rate of about 10 metres per day.

Each TBM will head away from the city on the first leg of their journey before being retrieved in Kensington and South Yarra. They will then be dismantled, trucked back to their starting point and relaunched toward the city.

That is far from the only project lifting Victoria’s infrastructure sector. Other developments underway include the level crossing removal program and the widening of CityLink and the Tullamarine Freeway. The sector will be further helped along in coming years by the West Gate Tunnel and North East Link. 

Nor is infrastructure the only area in which projects are happening. Last October, Cbus turned the first sod on its $1 billion Collins Arch project through which it will construct two 39-storey commercial towers joined together by a skybridge in Collins Street in the Melbourne CBD. In retail, a major redevelopment of The Glen in Melbourne’s south-east is underway. Further shopping centre makeovers are possible at Westfield Doncaster, Westfield Knox and the Jam Factory and the Como Centre in South Yarra. New outer urban shopping centres or town centres are possible in Craigieburn, Melton South and Armstrong Creek. Going forward, ACIF says it expects activity to remain at or above $52 billion in coming years.

In the year to September 2017, the state added a net of 147,400 people or 2.4 per cent to its population – a faster growth rate compared to any other state by miles. Building the infrastructure which will support these people along with the houses and apartments in which they will live and the offices, shops, factories, schools, hospitals, and entertainment facilities in which they will work, learn, receive treatment, eat, drink and play will be a massive task which will keep the builders busy.

That population growth is one of several factors driving the state’s economy. All up, Victoria’s economy expanded by 4.5 per cent across calendar 2017 (state final demand), almost double the 2.4 per cent growth rate recorded nationally. Over the past two years, the state has added more than 177,000 employees and self-employed workers to its payroll (public and private). Unemployment sits at 5.3 per cent – the second lowest rate in the country.

This is driving developer confidence. Indeed, participants in the latest Property Council of Australia/ANZ Property Industry Confidence Survey expressed greater optimism in respect of prospects in Victoria over the next 12 months than what has been the case at any stage during the survey’s seven-year history.

This is good news for workers. Over the past year alone, ABS data indicates Victoria’s construction sector has added a whopping 44,100 people to take its payroll from 264,100 over the three months to February 2017 to 308,200 in the three months to February this year. This represents the highest level on record by miles. That said, these massive levels of activity are also placing pressure on capacity and costs.

In its latest forecasts, quantity surveying firm WT Partnership says it expects price escalation for construction tenders on major civil infrastructure projects in the realm of four to five per cent over calendar 2018 followed by 4.5 per cent to 5.5 per cent in 2019. Already, WT said, the availability of specialist consultants, subcontractors, suppliers, plant and equipment is tight. This will worsen in 2018, it reckons. Moreover, as the pipeline of infrastructure developments reaches construction in parallel, WT says there will be large scale demand for materials such as concrete aggregates, reinforcement and steel. This will lead to cost escalation across multiple parts of the industry – a situation likely to continue until the total value of infrastructure works reached its peak throughout the period spanning 2021 to 2023.