Mixed forecast for local construction industry

The Master Builders Australia (MBA) has updated its forecasts for the building and construction industry out to 2026, which makes for sobering reading on the residential front.

While overall activity – residential, non-residential and civil – is still likely to expand modestly over the medium term despite post-pandemic challenges such as rising interest rates, surging inflation and unemployment at a 50-year low, there will be considerable variation in the pattern of growth by subsector.

Even though about 200,000 new homes need to be built each year to accommodate long-term population growth, it’s expected the industry will fall significantly short of the target until 2026.

Activity on the medium-high density side of the market is likely to be particularly slow.

“While pandemic conditions brought forward some residential building demand, the current economic conditions of interest rates hikes, inflation increases and continued shortage of workers and materials are significantly contributing to the decline,” said MBA chief executive, Denita Wawn.

Long-term supply constraints continue to hamper residential building, with the MBA supporting the decision by the Federal Government to establish the Housing Supply Council in conjunction with state and territory governments.

“Our members continue to be frustrated with lengthy delays in approvals for land title, building applications and occupation certificates,” continued Wawn.

“Shortage of land in the right places, high developer charges, and inflexible planning laws also restrict opportunities to meet the housing needs of our future. These long-term supply challenges are the responsibility of state and territory governments.”

Construction shrinks for third consecutive month

Interest rates affecting construction growth

Meanwhile, the outlook for non-residential building activity (social, cultural, retail, commercial and warehousing) is reasonable with a small decline in 2023 but steady increase from 2024-2026.

“Master Builders remains concerned about the potential impact of unfavourable changes to the industrial relations framework for non-residential activity,” Wawn said.

“Changes already made and intended are likely to mean higher costs and lengthier rollout times. Were it not for these changes, the forecast growth rates would be more substantial.”

Civil and engineering construction is likely to show the strongest performance of the three industry sectors and, while a small decline is forecast for 2023, it will be solid from 2024-2026. However, the MBA believes industrial relations changes currently under implementation will prevent growth from reaching full potential until 2026 and beyond.