How the Government is tweaking its building stimulus: Gottliebsen

The so-called ‘reconfiguration’ of the Government’s $42 billion stimulus package helps explain major events taking place in the commercial building industry. Let me tell you two tales from my commercial building industry friends, which explain some of what is happening in the industry.

First, there is going to a substantial scaling back of low income social-housing apartments from the grand plans announced last year. Those bringing sites for low-income dwellings before the Government and relevant authorities are suddenly finding everyone is taking more time to do things, compared to the big rush seen during the dark economic days.

An essential part of the social housing contracts is that the work must be completed before the end of 2010. As each day of delay goes by, there is less and less chance of new buildings being completed before the deadline. A few developments have taken place and more will get through, but the vast sums promised will not be spent. Some groups who devoted large amounts of time and money to these developments are angry. When those who represent poorer people understand what has happened they will become very vocal.

The cynics were saying that this is the Government realising that there is enough stimulus, so they are cutting back and in the process Australia will have borrowed much less money than was originally proposed. Those cynics now have evidence on their side.

An alternative explanation is that the completion deadline was put there simply to maximise political mileage by announcing big spending when everyone knew a big chunk of the projects could not meet the deadline.

These explanations might be right, but my guess is that the whole thing is simply bureaucratic incompetence.

My second tale comes from a medium to large-sized commercial building contractor who is all smiles. Not only is he working on a number of hospital and other Government contracts, but he also has a package of school projects, all of which are small but which together represent a large amount of work.

The Government will get good value with these projects, although prices have risen. My guess is that schools will find it hard to gain approval to tailor buildings to their requirements. Many schools agreed to buildings even though they did not need them. That may be stopped. Once again there are tight completion deadlines. Those builders that have been smart on education don’t really need the social housing contracts.

Finally, while I have no inside knowledge, those who depend on the first home buyers’ grant for a large portion of their business should not assume that it will be extended once its expiry date is reached.

This article first appeared on Business Spectator.