Construction recovery uneven, house building unsustainable

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POST-pandemic recovery will be varied across the Australian construction industry, with overall growth set to exceed expectations.

According to FTI Consulting and the Australian Construction Industry Forum’s (ACIF) Australian Construction Market Report 2021, a 2.7% growth rate is expected across residential, non-residential, and engineering construction.

Compared to the previous ACIF forecasts of a 3.2% industry decline over 2020-2021. This is largely attributed to a more limited spread of the COVID-19 pandemic across the country and ensuing government policies and initiatives.

This projection would bring the total level of building and construction work up to $243 billion for the year.

Despite this, growth is expected to be uneven with more long-term outlooks for the industry remaining unclear with COVID-19 still clouding forecasts.

“The uneven growth in various sectors of the construction industry is likely to be consequential for the Australian economy, particularly concerning shifts in the non-residential sector and the large growth in new house building,” said Kerry Barwise, managing director at FTI Consulting.

Infrastructure construction is expected to grow by 5% in 2022, with government programs in areas such as rail and electricity supply underpinning this growth.

Heavy industry is also expected to experience growth, climbing up more than 5% per year over the coming two years.

With record low interest rates, government supplements like the HomeBuilder initiative and improving employment outlooks the construction of new houses is anticipated to reach an unsustainable 10% of growth over the year.

“The uplift in the residential building sector, driven by temporary support measures, will not be sustained,” Barwise said.

Supply of labour, materials and land will be hard pressed to meet current heightened levels of demand, leading inevitably to delays, shortages and price gouging.

“The spike is expected to fall away when the stimulus is withdrawn and when higher prices reduced affordability weigh on demand. Reduced rate of immigration post-pandemic will reduce demand in the medium term.”

This Barwise anticipates will see residential building at large lift by 5% in 2021, only to drop by 4% the following year.

“The drop-off in demand and house building work when fiscal assistance is withdrawn is hard to estimate with absolute certainty, it could be large enough to be have a material impact on GDP and employment into 2022,” concluded Barwise.

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