Optimistic Forecast for Australia’s Construction Industry

The Australian Industry Construction Forum (ACIF) has just released the latest edition of its Australian Construction Market Report, developed in collaboration with CoreLogic and Future Place. This comprehensive report presents detailed forecasts of construction activity across 20 subsectors, encompassing residential building, commercial/non-residential building, and civil/heavy engineering construction.

A Bright Outlook for 2023/24 and Beyond

The report reveals an optimistic outlook for the construction industry, with ACIF upgrading its expectations for 2023/24. Despite the economic challenges, the volume of work has exceeded expectations, leading to an anticipated 5% increase in the dollar value of work done, reaching a substantial $298 billion. Looking ahead, construction activity levels are projected to surpass $300 billion annually over the next three years.

Key Drivers: Civil/Engineering and Non-Residential Building

The surge in construction activity is primarily driven by civil/engineering construction and non-residential building sectors. These sectors are expected to compensate for the subdued activity levels in residential building. Significant projects in public infrastructure, renewable energy, and industrial sectors are sustaining this growth.

Challenges and Risks

Despite the positive outlook, ACIF acknowledges the numerous challenges facing the industry. Builders are grappling with rising inflation, high interest rates, recent industrial relations changes, and ongoing labour shortages. While the sharp spike in material prices has moderated, they remain at elevated levels. Additionally, government spending cuts and project deferrals add to the industry’s hurdles.

Opportunities in Key Sectors

1. Energy Sector: A wave of new renewable projects is contributing to sustained growth in the energy sector. The Cordell database has seen a significant influx of potential projects, including substantial transmission and pumped hydro investments.
2. Roads and Railways: The current pipeline of road projects is expected to maintain near-record activity levels in the near term, with a slight tapering off post-2026. Railway projects, including Inland Rail and various metro extensions, will also keep activity at peak levels for the next few years.
3. Water and Sewerage: Large projects aimed at enhancing water security, such as the Hells Gate Dam and Alkimos Seawater Desalination, are driving historically elevated activity levels in this sector.
4. Health and Aged Care: The value of work in health and aged care is projected to increase significantly, with numerous hospital expansions and new projects on the horizon.
5. Industrial Sector: Demand for warehousing and logistics hubs, spurred by online retail growth and supply-chain disruptions, is sustaining high levels of activity in the industrial sector.

The Energy Boom: Potential and Speculation

While there is a considerable amount of activity surrounding Australia’s energy transition, questions remain about the actual impact on the construction sector. Many speculative projects are competing for similar resources, and only a fraction will likely come to fruition. However, the pipeline of investment is massive, with $133 billion worth of prospective projects entering the Cordell database in the last six months alone.

Housing Sector: Challenges and Prospects

The new housing construction sector is facing near-decade lows in approvals and construction lending. However, recent signs of improvement, such as stronger land sales in Brisbane, Adelaide, and Perth, indicate potential growth in detached housing. In contrast, multi-residential activity is expected to pick up significantly from 2025/26, driven by government efforts to increase housing supply.

Can the 1.2 Million Homes Target Be Achieved?

A key question is whether the Commonwealth and State Governments can achieve their target of delivering 1.2 million new homes over five years from July 2024. Current forecasts suggest that the nation will fall short, with new housing completions not expected to reach even 200,000 annually. The realisation of this target depends on factors such as interest rates, household income, productivity, and employment growth.

In conclusion, while the ACIF report paints an optimistic picture for the construction industry, it highlights the need for navigating significant challenges and uncertainties. The industry’s resilience and ability to adapt to changing economic conditions will be crucial in sustaining growth and achieving long-term goals.