The decision by the Reserve Bank of Australia to leave interest rates on hold is welcome relief for the construction industry in Victoria, according to international property and construction consultants Davis Langdon.

Davis Langdon’s Senior Economist and National Research and Development Manager, Dr Andrew Wilson, said construction costs in Melbourne have risen sharply over the past quarter.

This has largely been as a consequence of workloads bolstered by Building the Education Revolution activity, a strong revival in apartment construction and some improvement in the commercial and industrial construction sectors.  

He said buildings approvals were up on the same period 12 months ago and supply and labour pressures were building.

“With tender markets becoming less competitive as a consequence of increased activity, together with rising fuel costs placing pressure on the price of supplies as a consequence of a lower Australian Dollar, the prospect is increasing for continued significant building cost rises through 2010 and into 2011,” said Dr Wilson.

“Already skill shortages in key trades are emerging and salary costs are increasing as a consequence, with this outcome expected to be exacerbated as the level of on-the-ground workloads continue to rise.”

He said the latest ABS building approval data showed the value of Private Commercial building approvals recorded in Victoria so far in 2010 is 15% higher than for the same period in 2009 with the level of planned Industrial construction 17% higher in May compared to April.

Apartment construction activity in Victoria is booming with activity for this year nearly 50% higher than for the same period in 2009.

“Victorian leads the Commonwealth in private housing construction activity having with more than 34% of all building approvals so far in 2010; with activity levels still 25% above last year’s levels, despite the winding back of the First Home Owners Grant,” he said.

He said  supply-side constraints will impede the sustainability of the revival in construction activity currently underway in Victoria, particularly in regard to the availability of suitable human resources.

“This is an important challenge for policy makers and highlights the importance of the current debate on appropriate population strategies in the community.” Said Dr Wilson.

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au