12/11/2009 - 00:00

Supply-demand collision course

12/11/2009 - 00:00

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As Western Australia’s economic recovery gathers steam, supply-side constraints are shaping up as a major issue.

RESERVE Bank officials tend to be a circumspect group, so when one of them refers to a looming issue, it is likely they have diplomatically understated their concern.

Last week, Reserve Bank governor Glenn Stevens talked about the widespread surprise at the Australian economy’s robust performance over the past year.

He identified some major challenges facing the country as Australia seeks to sustain the economic recovery, and most of those challenges were on the supply side.

The prospect of skilled labour shortages already ranks as the number one concern for most businesses in Western Australia, judging by anecdotal feedback from numerous businesses across the state.

This issue has many dimensions. Big project developers such as Woodside, Chevron and CITIC Pacific, and their construction contractors, are driving the demand for extra workers.

Federal government stimulus programs, like its schools infrastructure spending and first homeowner grants, are adding to the demand for labour.

As growth sectors draw in extra workers, the supply pressure will be felt acutely across wide swaths of industry, eventually cascading down to small business, agriculture, government and not-for-profit agencies that have less capacity to attract and retain staff.

The response will have many dimensions – work that used to be done in Australia will be undertaken offshore, in engineering offices in Houston, construction yards in Thailand and workshops in Manila.

The use of fly-in, fly-out arrangements will increase. From a national perspective, this doesn’t solve the issue, but rather shifts the pressure point from places like the Pilbara to regional cities on the east coast where the workers come from.

Population growth will also increase, as Australia becomes a more attractive destination.

But here is the rub. As population growth increases, so does the demand for land, housing, and other goods and services.

“So the question of whether enough is being done to make the supply side of the housing sector more responsive to these demands will remain on the agenda,” Mr Stevens said.

He noted that lack of access to finance was already an issue, because of the risk-averse lending policies adopted by Australia’s four big banking groups, which dominate the market more than ever.

Mr Stevens does not believe this will be a permanent problem. He sees land supply, zoning and approvals as more persistent difficulties.

The state government has acknowledged this issue, with Housing Minister Troy Buswell meeting with industry groups last month to discuss the best way forward.

That was an encouraging step but of course needs to be followed up with tangible action.

The supply of skilled labour, and of land and housing, are just two examples of the pressures that will come to bear on WA as the state’s growth accelerates.

Rising growth will once also put added pressure on a wide range of economic and social infrastructure.

Chamber of Commerce and Industry WA chief executive James Pearson highlighted the issue last week, stating that the challenges that come with a growing economy are back on the agenda.

He expressed concern that problems such as severe labour shortages, a lack of affordable housing, and infrastructure bottlenecks would hamper the state from realising its full economic potential.

These are not new issues and unfortunately the state lacks a comprehensive strategy to deal with them.

One of the commendable steps taken by the former Labor government was the preparation of a state infrastructure strategy, with input from the business sector, but this document has never seen the light of day after becoming a victim of the electoral cycle.

The strategy document would have provided a wide framework for evaluating the competing demands on the state.

Issues such as: the future of the port of Fremantle, which will approach capacity in the next decade, requiring the establishment of a new port at Cockburn Sound; the construction of high capacity transmission lines to carry electricity to the Mid West; the upgrading of Perth airport and the surrounding roads; or the building of social infrastructure like sporting stadiums.

The list goes on, and the answers remain unclear.

 

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