Industry experts have raised concerns that the construction sector may face extensive layoffs and delays in housing projects as a result of disruptions stemming from the conflict in Iran.
Andrew Mahar, owner of a civil construction firm in Victoria, noted that the prices of essential materials have surged by 50% since late February. A representative from the federal government indicated that efforts are underway to alleviate the strain on businesses, urging the Civil Contractors Federation to collaborate with state and territory governments to “explore contract flexibility.”
Graeme Collins, who, along with his wife, purchased land in Pyalong—approximately an hour north of Melbourne—was excited about finally starting to build their dream home after a five-year delay attributed to the COVID pandemic. However, with the onset of war in the Middle East, costs for their project have increased dramatically. In a mere six weeks, the expenses have escalated by $120,000.
Collins explained, “We are currently shifting from the planning phase to site preparation. What was initially estimated at $14,000 for site preparation and an additional $8,000 to $12,000 for the driveway has now doubled, mainly due to rising diesel prices. This is before we even begin the foundation or the actual home construction.” He added, “Even with a fixed-price contract, we are facing an additional $120,000 in costs, which will impact our builder as well. I sympathize with others trying to fulfill contracts when prices are changing rapidly.”
Andrew Mahar, whose company, Central Vic Civil, employs 40 individuals and primarily works on local government infrastructure and road projects, echoed these sentiments. He stated, “Since the conflict began, the cost of materials like asphalt has surged by 50%. Other items, including PVC products, pipelines, and drainage systems, have risen by 30% to 40%. Fuel prices have also doubled, creating significant financial burdens.”
Mahar pointed out that most civil construction contracts are fixed-price agreements, which afford little flexibility to absorb unexpected price increases. “Once you’re locked into a contract, any rise in fuel or material costs directly impacts the contractor,” he explained. “If we cannot negotiate with clients or local authorities to adjust these contracts to account for rising costs, we will have no choice but to reduce our workforce and halt operations.”
The Civil Contractors Federation (CCF) has warned that Mahar’s situation is not unique and predicts that without immediate government action, thousands of construction businesses could face bankruptcy, leading to significant project delays. A report commissioned by the CCF highlights that insolvency rates in the sector have more than doubled since the pandemic, and the current crisis could exacerbate the issue.
Proud called for all levels of government to intervene and help bridge the price gaps faced by contractors in light of soaring input costs. “Most private contracts involve fixed costs, limiting recovery options, which poses a challenge for businesses attempting to initiate and complete projects,” he explained. “We must find ways to keep these companies operational or risk losing them altogether.”
Independent economist Saul Eslake, who authored the CCF’s report, indicated that providing financial support—potentially amounting to tens of billions of dollars—would not trigger inflation. “The assistance would simply prevent a significant downturn in construction activity that would result from companies becoming unsustainable,” he noted. “A large-scale collapse of companies would lead to decreased economic activity and substantial job losses.”
Eslake has urged the federal government to revise the Liquid Fuel Emergency Act to classify the construction sector as “essential users” of fuel amid potential rationing, a designation currently limited to defense, emergency services, taxis, and public transport. He also advocates for state and territory governments to create a consistent mechanism to adjust contract values in response to significant changes in input prices, alongside providing temporary support for projects unable to absorb sudden cost increases.
According to Eslake, the challenges currently confronting the construction industry are more severe than those experienced during the COVID pandemic, which already disrupted global supply chains and caused construction costs to double in Australia.
