Summary top

Residential building activity is now recovering. The recovery has been supported by the Government’s $6 billion stimulus package, for social housing funding. With the economy recovering from the recent GFC-induced downturn, 2010/11 is forecast to be strong with 10 per cent nonminal growth in residential building activity.

The current downturn in non-residential building is being moderated by the high level of educational building activity (caused by the Government’s Building Education Revolution stimulus package). The current weakness in retail, office and industrial building will keep total non-residential building activity subdued over the short term. As those sectors begin to recover, educational building will wind back. This winding back of educational building will mean that total non-residential building will remain subdued over the medium term.

Engineering construction has reached record highs, driven by strong investment in mining related infrastructure. It is expected to remain high with several new, large mining, road, rail projects and the roll out of the National Broadband Network.

The construction activity outlook is consistent with the macro economic forecast of a continued, gradual recovery. The forecasts assume the policies of the current government remain in place.

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Residential Construction highlights>>

Non-residential Construction highlights>>

Engineering Construction highlights>>

Highlights of Forecast for Residential Building top

• Residential building is now recovering, after a very weak 2008/09. Residential building was weak in 2008/09 due to the negative economic impacts associated with the GFC. In 2009/10, residential building activity has been boosted by the Government’s stimulus package, (in response to the GFC) of $6 billion in social housing funding. This included 19,300 new dwellings and maintenance for 70,000 dwellings. To date, around 14,000 new social dwellings have commenced construction, and around 40,000 dwellings have been repaired. The remaining work will continue to support residential building activity in the short term. With the economy recovering from the recent GFC-induced downturn, 2010/11 is forecast to be strong with 10 per cent nonminal growth.
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• New house building activity slowed in 2008/09 as the effect of the GFC took hold and the Australian economy slowed. Now that the economy is picking up, new house approvals are also stronger. In the six months ending March 2010, the value of new house approvals were 36% higher than in the six months ending March 2009. In the next two years (2010/11 and 2011/12), new house building activity is forecast to be solid with 10 per cent growth each year. This is due to strong underlying demand, low interest rates and low unemployment.
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• New other residential includes townhouses, units, etc. This type of building activity is generally driven by commercial developer activity. As the impacts of the GFC resulted in an end to cheap and easy credit conditions, the pipeline of new medium density developments dried up in 2008/09. This caused the sharp fall in work done during 2009/10 of an estimated 11%. This sharp fall is expected to be followed by a sharp recovery in unit and townhouse building activity. With the economic recovery now in full swing, approvals for units and townhouses are much stronger. In the March quarter 2010, approvals were 60% higher than in the March quarter 2009. This improvement will to flow through to work done in 2010/11, with a forecast strong 23 per cent increase in the value of activity.
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• Alterations and additions is recovering in line with the rest of the residential building sector. Commencement of large alterations & additions peaked at a high $1.9 billion in the December quarter 2009, which is 20 per cent higher than in the December quarter 2008. Consumer confidence is much higher than last year, which is boosting house renovation activity. Hence, alterations & additions are forecast to gain strength over the short and medium term.
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Highlights of Forecast for Non-residential Building top

• The current downturn in non-residential building is being moderated by the high level of educational building activity (caused by the Government’s Building Education Revolution stimulus package, valued at $16 billion). Specifically, in 2009/10, total non-res building fell four per cent in nominal terms, despite a 140 per cent increase in educational building activity. If it wasn’t for this high level of education building, the downturn in total non-res building would have been more severe.
  
  The current weakness in retail, office and industrial building will keep total non-residential building activity subdued over the short term. As those sectors begin to recover, educational building will wind back. This winding back of educational building will mean that total non-residential building will remain subdued over the medium term.
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• Retail building has slumped, declining by an estimated 26 per cent in 2009/10. Easy credit conditions before the GFC led to an oversupply of retail building space, which is now being worked off. Activity was then negatively affected by the GFC as the economy turned down. With the economy now recovering, retail building activity is expected to regain momentum, with a strong 16 per cent increase in 2010/11 and further 13 per cent in 2011/12.
  
  Easy credit conditions pre-GFC led to an oversupply of office building space. The GFC itself then created an environment where credit was constrained. These factors have led to falls in office building approvals and commencements, which led to an estimated 36 per cent decline in activity in 2009/10, and the effect will continue into 2010/11. However, the sharp downturn in office building activity is expected to be followed by a sharp recovery. As the GFC impacts dissipate, and the supply of office building is worked off, new demand for office building will emerge. Office building is forecast to rise by a strong 31 per cent in 2011/12, followed by a further 18 per cent the following year (2012/13).
  
  After more than doubling in the period 2001/02 to 2007/08, industrial building has also plunged. More difficult credit market conditions and the GFC have particularly affected the level of activity in this sector. In 2009/10, industrial building activity declined 39 per cent. Like retail and office building, industrial building also faces a recovery. However, it’s recovery is expected to be more gradual than for retail and offices. Over the medium term, industrial building is forecast to return to a more sustainable level.
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• Educational building is the stand-out performer in terms of non-residential sector growth for 2009/10. This is due to the Building Education Revolution stimulus spending, where $16.2 billion is being invested in educational facilities through infrastructure and refurbishment over 3 years. Educational building activity rose by an enormous 140% in 2009/10. Educational building approvals peaked at $7.5 billion in the September quarter 2009, and have now eased to a solid $2 billion in the March quarter. The current high level of activity will wind back over the medium term, as the impact of the stimulus fades.
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• Health and aged care building activity has been very strong in 2009/10 with an estimated 23 per cent growth. This strength is attributed to the commencement of some major hospitals, including the new Gold Coast hospital, the Queensland Children’s hospital, and the new Fiona Stanley Hospital in Perth. These major health projects will keep activity high in the short term, with a further 11 per cent growth expected in 2010/11.
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• Accommodation building activity is currently weak, and is forecast to remain weak over the short term. The fallout from the GFC continues to impact negatively on business travel and the relatively high australian dollar discourages international tourists from visiting Australia. This means that construction of Accommodation buildings will remain weak, with no recovery expected until around 2011/12.
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Highlights of Forecast for Engineering Construction top

• Engineering construction is currently at a high level, and is expected to remain high, As new, large projects come on line, such as the recently-commenced Greater Gorgon gas project, and upcoming APLNG project in Queensland, total engineering construction activity will remain high. Road and rail activity will also contribute to the high level of activity with new Government-funded infrastructure projects. The National Broadband Network will be a significant contributor to the high level of overall engineering construction activity.
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• The start of new road projects in 2008/09 caused road construction activity to rise to a high $16 billion. Road construction activity is forecast to be at a solid level over the medium term, with the commencement of several new large projects. Some of these include the Hunter Expressway in NSW, the Northern Link tunnel in Queensland, and Westlink in Victoria.
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• Bridge, railway and harbour construction activity has more than doubled over the last five years to around $8 billion a year. This type of construction is expected to continue growing at a fast pace with the commencement of several new large projects. Some of these include the Regional Rail Project (Victoria) valued at $4.3 billion, the Cross River Rail project (Queensland) valued at $10 billion, and the Oakajee port and rail projects (Western Australia), valued at around $2 billion each.
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• Electricity and pipeline construction activity reached a very high $12 billion in 2008/09, due to the start of several new projects, including many wind farms. This type of construction is forecast to ease back from a high level over the short term. Government policy on Australia’s future climate change needs to be made clearer to give certainty to investors in this sector.
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• Water and sewerage construction activity has surged to a very high $10 billion in 2009/10 compared to around $2 billion only five years ago. This surge has been driven by the government’s move to address the inadequacies in Australia’s water infrastructure. In particular, a series of desalination plants has boosted this type of construction. The latest commencement was the Wonthaggi deslanination plant in Victoria, valued at around $4 billion. Looking further out, the construction of many large-scale projects like desalination plants are coming to an end. However, there will be a need to undertake maintenance on existing water facilities that has been delayed while these large-scale projects have been constructed. Hence, water and sewerage construction activity is forecast to ease from its current very high level, to a more sustainable, but solid level.
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• Telecommunications construction activity is forecast to rise to a very high level as the National Broadband Network (NBN) is rolled out. NBN is estimated to cost $43 billion according to the Implementation study. It involves providing Fibre To The Premise—FTTP to 90 per cent of premises in Australia, and satellite and wireless technology to the remaining 10 per cent. The roll-out period is approximately 8 years. Hence, telecommunication construction activity is set to rise over the short to medium term as the NBN gets under way.
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• Mining construction continues to strengthen, with activity at a high $27 billion in 2009/10. Mining construction activity is forecast to remain high, as new projects commence. The Greater Gorgon gas project commenced in the December quarter 2009, raising ABS commencements to a whopping $43 billion. Further out, projects like the Alpha coal project, the Curtis Island gas project and the APLNG projects – all in Queensland – will keep mining construction high.
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