It's long been a dream of many in the Melbourne construction sector to build medium-density apartments at the same cost of building housing in the suburbs. But this dream has remained a fantasy for a simple reason -- as soon as an apartment exceeds two storeys, construction unions claim building must occur under union rules.
The result to date is that union-built apartments cost about $2600 per square metre while a normal house costs about $1000 per square metre. This excessive cost has contributed to killing town planners' dreams of consolidating Melbourne's growth and restricting the urban sprawl.
The culture of building apartments under union rules has clashed with the social objective of providing affordable medium-density housing. It partly explains why the State Government realised its Melbourne 2030 plan is unrealistic. It is sensibly and quietly releasing more urban-fringe land for domestic housing to secure affordable housing.
Understandably, developers eager to service the urban consolidation dream have appealed to the State Government to negotiate solutions with unions. But developers are wrong. The power to build apartments at a lower cost is already in their hands. The State Government can't do more.
In 2006 the Federal Government introduced laws that changed the rules and behaviour in commercial construction. Until that time, the commercial construction sector was ruled by violent, near mafia-like, behaviour by unions. The new laws introduced a powerful "cop onto the construction beat", the Australian Building Construction Commission.
Any company that defies the laws and illegally colludes with unions does not receive government construction work. This has created a powerful commercial trigger to comply with the laws, given government funds a third of construction.
The ABCC has important whistle-blower-type protection powers. This includes being able to make people give private, protected evidence so union thugs and colluding companies cannot identify those who have exposed breaches of the law.
Some unions and companies have not liked this, but the results for the community have been startling.
Industrial disputes in the construction sector have plummeted to almost nothing, from being the highest in Australia. Comparative commercial construction costs have dropped markedly.
Labour productivity in construction is up 17.6%, and employment numbers have increased. The cost differential between commercial and housing construction has collapsed from over 15% to about 2%.
But these impressive figures do not apply to all builders and all developers. It depends on how smart they have been in grasping the new laws and creating new workforce strategies. There have been winners and others left behind.
EastLink has been a big winner. It has opened six months early, producing a windfall for investors from big cost savings and unbudgeted additional revenue flows. EastLink was built with workforce arrangements influenced by the Federal Government's construction reforms. By comparison, CityLink suffered from old union rorting, now well documented, which resulted in huge cost overruns and completion delays.
Politically there is no blockage to achieving the same results on EastLink with medium-density apartments. The Howard government created the construction reforms. The Rudd Government has kept them in place. Rudd could easily have made big pro-union changes quickly, but instead has committed to keeping a "strong construction cop on the beat".
The Victorian Government has co-operated with the reforms. The state economy benefits from the reforms. There's a direct positive impact on the budget. Victoria gets more infrastructure spend for its bucks. That means more roads, hospitals and schools.
But government can't run private businesses. Business always complains that governments interfere. The best governments create and enforce laws that allow business to operate fairly. That's what the construction reforms have achieved.
However, developers who think that Labor governments can create cosy pro-business deals with unions, have an outdated understanding of relationships between Labor governments and unions. Labor governments don't do the bidding of unions and unions don't do the bidding of Labor governments.
In Victoria in particular, government-union relationships are at arm's length, and often tense. Witness the prolonged teacher union problems over pay.
To build medium-density apartments at normal housing costs, Melbourne developers have their future in their hands. EastLink and many other subsequent projects prove this. The law and management templates available are often being used and frequently include sensible union involvement.
Given developers' continuing complaints, what presumably is missing is updated management competencies.
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