“Curates egg” recovery from 2008 collapse

The health of the construction industry is good in parts, according to the latest forecasts from the Construction Forecasting Council.

“Government spending is holding up activity in non-residential and engineering construction, whilst the difficulty of obtaining finance is depressing the private sector investment,” said Peter Barda, executive director of the Australian Construction Industry Forum (ACIF).

“Private sector spending on non-residential construction is still depressed by lack of confidence, and a shortage of development finance, whilst government spending on education and health infrastructure has made up about half of the private non-residential activity lost through calendar 2008,” said Barda.

“As the Building the Education Revolution spending runs out, we are expecting further falls in non-residential activity, until developers and investors turn from acquiring existing assets to developing new ones. We are forecasting modest recovery in the sector in 2011/12.”

“In the residential construction sector, activity in new house building during 2008/2009 has been very strong, and will continue at reasonable levels, although lack of development finance continues to depress the market for apartment construction,” he said. “Residential building in 2009/10 and 2010/11 will continue to be strong.”

“Engineering construction has fallen markedly from historically high levels, but government spending on infrastructure, and expected spending on the national broadband network, are forecast to maintain  high levels of activity, in part offsetting reduced  spending on construction of mining infrastructure,” said Barda.

In residential building while approvals have continued to slide in recent months, substantial pent-up demand remains for housing and will drive real growth, although there is uncertainty over the impact of  the scaling back of the First Home Owners Grant, said Barda.

 “Demand is still there for housing: stocks still remain in short supply, and rents are continuing to rise,” said Barda.

 “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.

“Government spending and a return of mining infrastructure construction will see the cycle kick up in 2011/12,” said Barda.