Nick Deeks from WT Partnership shares his thoughts about infrastructure development, building safety and compliance and functional design.
We've had the Banking Royal Commission. We are having a slowdown in the economy. The Reserve Bank press releases indicate we might be dropping the interest rates, and of course, we are witnessing what many are calling a correction in the housing market. Where to from here for the building and construction sector?
The Banking Royal Commission, from what I understand, isn’t necessarily having an impact directly in the construction sector or the lending sector; it’s probably more procedure within the banks and how they do things.
Finance for construction projects has always been fairly stringent – you've got to meet a lot of criteria to be able to get through the hoops and hurdles and checks and balances within the bank to get the borrowing.
This has always been reviewed and is constantly getting tightened and is affected by what's happening within the markets so I'm not sure that has necessarily changed or been affected by the Banking Commission. I spoke to a couple of guys at the banks over the past few days and certainly the risk area is probably the tightest part of the banking system there.
About the correction in the housing market – I'm not sure whether correction is the right word for it. It seems to me that it starts with a little bit of coverage in the media, which then starts to build and then it affects the general consumer and the general population.
Then all of a sudden you’ve got this snowball effect where the media are saying to people that houses are overpriced so people start holding off on borrowing thinking that it's going to correct itself and they'll get a better deal in six or nine months’ time, so then auction rates drop and it goes on.
Whether that's a correction or just something that happens, I think it is a kind of a cyclical thing if you're in the market. Of course, if you're selling and buying, it doesn't really make a lot of difference. If you sell at a high, you’re buying at a high; if you sell at a low, you’re buying at a low. There aren’t many people that can sell at a high, sit it out and wait and buy at a low. It probably affects the people who are trying to get into the market.
Anybody starting out, working young, in their twenties or early twenties, I don't know how they really get into the housing market unless their parents are going to give them a bit of a leg up. But millennials also have got a very different opinion to what we would have about owning a home. It was always just drummed into you as a kid that that's what you did because that's what everybody around you did – that you have to own your own home – your own piece of real estate so that you have some kind of capital growth through your life.
Many millennials don't even think about that. They seem to be quite happy renting because it gives them flexibility, it doesn't tie them down, so there's a real quandary in there. Whether things are overpriced or not, at the end of the day we’ve still got shortage in housing, we’ve got increasing population, so if there's a correction there is a correction, but it's going to correct again the other way at some point.
Let's talk about infrastructure. We have a state election and a federal election coming up, and infrastructure will be one of the top issues that will be discussed. How do you think all these changes will impact infrastructure development?
The thing is, we need infrastructure, and we’ve needed infrastructure for a long time. We are getting it at the moment certainly in New South Wales and Victoria because both governments are recycling infrastructure assets and are obtaining money and finance to be able to build more assets. We've got a real peak in construction than we have had for a few years.
I’ve been here 25 years, and it's been nothing like it is now, especially the last 4-5 years when infrastructure has really taken off. But part of it was demand, and the demand was always there, so we should have had this infrastructure built a long time ago.
Infrastructure gets built for political reasons, so it comes in political cycles and it comes in election campaign promises. But infrastructure should be there because we need to have it, not because we need to have votes in a certain area. We're not necessarily getting the infrastructure that we need to service the requirements.
The CBD light rail is a perfect example. They're now talking about a completion date in 2020. Transport for New South Wales did a study and concluded that there was a 5.1 billion dollar cost to the economy through congestion, and that would rise to about 8.8 billion by 2021. In 2015 Infrastructure Australia did a report and told Transport for New South Wales that the project wasn't good value for money and would probably increase congestion, but we still got it.
We’ve still got it going, it’s still delayed, it's still overrunning in costs, and it still impacts everywhere. It’s not just the disruption; I came from Clarence Street this morning, which is just down near Barangaroo to Surry Hills and it has taken me half an hour.
A lot of these disruptions are caused by the light rail, which is having an impact on residents and local businesses, and a huge impact on the taxpayer at the end of the day. There is a class action from a hundred different businesses at the moment to the government for 400 million dollars.
So was that ever accounted for in that business model of 5.1 billion dollar cost? I don't know. The project is a good project. But it's just been going on for so long that everyone's sick to death of it and I don't know whether it's really going to work. I think it would be good from a tourism perspective.
But we are still looking at the viability of harbour crossings and transit links to the northern beaches in all these things we needed years ago, and now we've got the second airport happening. It’s debatable whether we need that second airport; perhaps we could have built more capacity within Kingsford Smith. It's good from a personal perspective and a business perspective – it’s very good for WT Partnerships who are involved in a lot of these projects, it's good for the economy and certainly within the construction sector that there are so many projects because it’s employing a lot of people. However, it is causing disruption and I'm concerned about the longer term impact it's having on the state and the impact it's having on tourism and business.
In that respect, is it then perhaps smarter to optimise the infrastructure we have rather than ripping up half the city to stick in light rails? Is it better to optimise and maybe refurbish what we already have?
I don’t believe it will work. I think the infrastructure we've got is poor.
London, for example is pretty congested, and the cross city train project, Crossrail is causing a huge amount of disruptions, affecting many of the stations, and many of the roads are shut down.
But that will actually be a pretty good project when it's done, because it’s servicing something and some people and it's getting people from east to west and moving people around. The infrastructure we have doesn't really seem to be doing too much, so I don't think we can refurbish what we’ve got; it’s like trying to put a kiss of life into a dead dog.
We do need to have better infrastructure. Here the problem is we couldn't really refurbish and build upon what we had, we had to put more in. An example of trying to refurb what we have was the Lane Cove tunnel - the M2; when that project was built, it had two lanes each way - the viability probably should have been three.
Ten or fifteen years later we added another lane, and the expense of adding another lane is probably 10-15 times more than it would have cost to put it in the first place. We are doing exactly the same with Pacific Highway. From Wahroonga north, they are widening now by adding a lane on each side that comes into the NorthConnex.
But the amount of road and rail bridges that cross that particular road with abutments widened for every one of them and a new lane put in – it's a horrendous cost. What it comes down to is just foresight – only if we had sufficient foresight to look ahead to try and see our requirements and then to action those requirements without relying on a business case or a business model, or talking about traffic numbers, train patronage and ticket cost. If we need it, we need it, just find a way to make it viable. Look at Asia –what Asia did was not build infrastructure based on how much they were going to recoup. In Singapore, you can travel into the CBD before 7.15 or 7.45 constantly.
They are not recouping capital expenditure through tickets; it's about moving people around because of the cost on business and the costs on the wider community by not getting there. If we come back to my earlier example of how it takes half an hour to get from Clarence Street in the city to Surry Hills, which should take ten minutes; it means twenty minutes of my time are wasted.
Think about how many people who work in the city are affected: 15-20 minutes on every single journey multiplied by an hourly rate, the cost soon adds up so it has to make sense to be able to move people around as quickly as possible.