The impact of inflation and industrial strife on the construction industry in Australia

Abstract

The impact of inflation and industrial strife in general and in the construction sector in particular in Australia during the period 1968–78 has been examined in quantitative as well as qualitative terms. The effects of inflation on time dependent costs of construction are severe in themselves, and they are exacerbated both by the abnormal extensions of time generally required for construction works to be completed and by the uncertainty of occupation resulting from industrial strife, which add to construction costs and to the costs of finance. Inflation of costs and of interest rates has inhibited a significant proportion of the population from ownership of dwellings. The effects of inflation, and abnormal extensions of time and uncertainty of occupation arising from industrial strife, have added approximately $ 400 million on average to construction costs of major building projects each year over the 1971–76 period. They have played a significant part in the collapse of the construction market and the increase in insolvencies in this sector; enterprises remaining have maintained or improved net operating surpluses on average, although whether this has flowed through to net profit is doubtful. Indexation of construction contracts has proved practicable and indeed of value to an industry with profit margins small in comparison with un-indexed risks. There is a school of economic thought that general indexation of many transactions in the community would be an economically useful aid to general inflation management, although whether this would lead to a reduction in the rate of inflation and what the long term consequences might be are hotly debated.