Industry News

Master Builders Say a Building and Construction Recovery is Coming

Master Builders Australia released forecasts on 20 May 2013 for the building and construction industry, showing a mixed recovery across the three major sectors based on a positive growth path over the three year forecast period to 2015-16.

The forecasts are derived from a sophisticated model purposely built for the building and construction industry developed by Master Builders in collaboration with Independent Economics.

While the forecasts predict a positive growth path for the industry, the current economic climate presents many significant headwinds that may become impediments to the timing and strength of recovery in the forecast period.

Peter Jones, Chief Economist for Master Builders Australia said the return to more positive conditions for the industry implicit in the forecasts signals light at end of a very long tunnel for the residential and commercial building sectors, but does not herald a return to boom era levels.

The three year forecasts to 2015-16 for the three sectors follows:

Residential Building
The value of Residential Building work done is set to improve strongly, but from a low base, over the next three years after marginal growth in 2012-13.  The value of residential building work done, in real terms, is forecast to grow from $46.2 billion in 2012-13 to $60.9 billion in 2015-16.

In terms of commencements, dwelling starts are predicted to rise to 164,000 in 2013-14, 179,000 in 2014-15 and 183,000 in 2015-16 – more than a decade after dwelling starts peaked at around 175,000 in 2004.

The underlying assumption is that low interest rates will work to release significant pent up demand after a long period of underbuilding that occurred at the same time as Australia experienced strong population growth.

“The stronger performing states are forecast to be Queensland, New South Wales and Western Australia.

“The key risks to the forecasts are frail consumer confidence, economic uncertainty, asset price volatility and ongoing softness in the labour market.

“The improvement in the Residential Building outlook comes from a very low base and the challenge remains for policy makers to address supply side inefficiencies and impediments that have contributed to the nation’s growing housing shortfall,” Mr Jones said.

Non-Residential Building
Non-Residential Building work done is predicted to decline further in real terms in 2012-13 followed by modest growth in the following years. Growth is expected to be driven by commercial and industrial building sectors, contrasting with weakness in social and institutional sectors and education related building.

The Non-Residential Building sector contracted severely in the second half of 2012 as GFC stimulus programs ended. The value of Non-Residential Building work done is expected to improve to $33.9 billion in 2015-16, in real terms. However, by the end of the forecast period, level of work done is predicted to still be below that achieved in 2009-10.

“For Non-Residential Building, strongest performing states are forecast to be New South Wales, Queensland and Victoria, with industrial, retail and office building leading the way.

“The key headwinds and risks are poor cash flows, low margins and tough lending criteria. Investor confidence also remains low reflecting current economic conditions,” Mr Jones said.

Engineering Construction
The Engineering Construction sector reached phenomenal heights during the resources investment boom. Despite signs the investment phase is beginning to peak, Engineering Construction activity is expected to remain strong.

Activity is forecast to increase 5.4 per cent in real terms to $122.1 billion in 2012-13 before falling back 12 per cent to over the following three years to a level of $108.0 billion.

“After very strong growth, Engineering Construction activity in the Northern Territory, Western Australia and Queensland are forecast to fall back, albeit remaining at extremely high levels in an historical context. Victoria and Tasmania look set to benefit from stronger infrastructure spending,” Mr Jones said.

“The forecast improvement in building and construction conditions is set against a background of the two speed economy with weak activity outside of mining, fiscal consolidation, poor sentiment, a high Australian dollar and the soft labour market.

“As a result, the forecast recovery in the non-mining related parts of the building and construction industry is mixed. Performance by sector and state is highly variable, with Queensland, New South Wales and Western Australia set to enjoy better times after a number of challenging years.

“Master Builders, in forecasting improvement in building industry conditions, reinforces its call for ongoing microeconomic reforms at all levels of government in order to underpin the length and strength of the recovery. This will allow the industry to enter a sustained recovery and reclaim its role as one of the economy’s key drivers,” Mr Jones said.

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