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“Two-speed” building sector as government spending holds firm while private spending plummets |
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23/6/2009
Evidence of a “two-speed” non-residential building sector – with government-funded sub-sectors holding up and even increasing, while private spending continues to fall sharply – has been confirmed by the latest forecasts from the Australian Construction Industry Forum’s Construction Forecasting Council (CFC).
“Private sector spending has collapsed in non-residential construction, and government spending and stimulus packages – while very welcome to the industry – are not able of themselves to offset this private sector spending collapse,” said Peter Barda, executive director of the Australian Construction Industry Forum (ACIF).
“In the residential construction sector, the short-term outlook is beginning to look encouraging, while the medium-term outlook for single unit dwellings is very good,” he said. “Residential building in 2008/09 and 2009/10 will be steady in real terms, before increasing moderately in 2010/11.
“Also looking quite positive is engineering construction, where – aside from mining infrastructure, which has seen massive expenditure on the back of the resources boom, and a corresponding large slump in spending as commodity prices have fallen – the outlook for infrastructure construction means much of this sector should avoid a collapse in activity,” said Barda.
However, in terms of employment in the total building and construction sector, the forecast remains grim, with 75,000 to 80,000 construction worker jobs expected to be lost before the recovery.
“It also appears that among construction industry professionals: architects, quantity surveyors, engineers and the like, job losses will be significant. While no firm figures are available, anecdotal evidence points to reduced work opportunities resulting in a significant loss of professionals to the industry.”
Barda said that spending in the education sub-sector of non-residential construction, through a combination of the Rudd Government’s “Education revolution” and its stimulus packages, is set to increase significantly in the short and medium terms, as is spending on health and aged care.
“Both are forecast to increase by around 5% each over 2008-09, further increasing to around 16% each next financial year, and both will show average growth in spending of about 10% a year over the next five years,” he said.
“However, while both sub-sectors are showing growth – and work opportunities for contractors and suppliers servicing them – the forecast growth in spending will not be sufficient to offset the steep falls in private sector spending and activity.
“With public sector spending accounting for only around 30% of non-residential expenditure, overall growth for the non-residential sector is expected to be flat for 2008/09, dropping 16% for 2009/10 – despite the impact of spending in education and health – and further falling an average of 2% a year for the next five years.
“Overall, activity in this sector will be patchy, with substantial negative growth for at least the next two years.”
In residential building while approvals have continued to slide in recent months, substantial pent-up demand remains for housing and there will be a strong upturn in the near future, said Barda.
“After falling by 17.6% in the December quarter 2008, total approvals were down a further 16.4% in the March quarter 2009, with all categories falling.
“Approval levels in the investor-sensitive unit/townhouse market have almost halved in the past six months, while house approvals have fallen by more than a quarter since the September quarter of 2008.”
He said that while 2008/09, and 2009/10 total residential building activity was forecast to be flat in real terms, it would rebound strongly by 35% in 2010/11.
“Demand is still there for housing: stocks still remain in short supply, and rents are continuing to rise,” said Barda.
In addition, household debt levels have come down significantly, consumer confidence looks to be returning and bank lending for home borrowers is loosening up.
“Currently, the main negative is uncertainty over unemployment levels – which on the latest figures looks to have less impact than was being predicted a few months ago,” said Barda.
“As the economy turns around, and people start finding jobs again, residential will start to really take off.
“And once the commercial developers re-enter the market and house price growth starts to improve, this sector will record strong growth,” he said.
Engineering construction received a solid boost in the Federal Government’s May Budget, with higher spending announced for power generation, roads, rail and the early stages of the National Broadband Network (NBN) rollout, which should prevent a collapse of activity in this sector before the next economic upswing.
“Despite the global financial crisis, long project lags have meant that the major economic downturn will not be felt in this sector until 2010-11,” said Barda.
“The main impact on this sector will be in mining construction, spending on which is forecast to be down by more than half in 2010/11.
“On the positive side, the recent Budget announcements outlined $3 billion in additional spending for carbon storage facilities and solar power plants.
“Many other projects announced in the Budget will be funded out of the Building Australia Fund, which has already been accounted for in previous CFC forecasts,” he said.
ACIF’s Construction Forecasting Council (CFC) produces twice-yearly forecasts of building and construction activity, covering short, medium and long-term prospects for the industry.
These forecasts are based on modelling of the economy by KPMG Econtech, and include short-term to long-term forecasts (10 years). The CFC’s latest forecast figures have been derived from the December 2008 quarter National Accounts and Australian Bureau of Statistic building approvals to the end of January.
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