Australia’s construction industry is set to offer $340 billion worth of opportunities in 2025/26, new forecasts show.

And the industry is likely to employ more than 1.4 million people throughout the year.

(above image: AI generated via Freepix)

The Australian Construction Industry Forum has released the latest edition of its semi-annual Australian Construction Market report.

The report provides detailed forecasts of national and state/territory activity across 20 subsectors covering residential building, commercial/non-residential building and civil/engineering construction.

Overall, the report forecasts that the dollar value of construction work done throughout Australia will grow by 1.6 percent from a forecast $334 billion in the current financial year to $340 billion in 2025/26.

This will occur as the recovery in residential building strengthens from the middle of this year.

Beyond that, the rate of growth is expected to accelerate further as overall activity levels reach $351 billion by 2026/27 and $373 billion by 2028/29.

This will be supported by further strengthening in residential building and a massive flow of projects in energy and water infrastructure.

A significant driver of growth will be residential building.

In this sector, ACIF forecasts that the dollar value of work done (on both new builds and existing home renovations) will increase from $134.3 billion in 2024/25 to reach almost $150 billion by 2027/28.

This will occur as the recovery in new home construction gathers momentum from the middle of this year.

The prospect of interest rate reductions has helped to support improvements in approval and commencement numbers, the report notes. This is being further supported by a moderation in the rate of cost escalation and the beginning of moderation in wage inflation.

The report notes that much of the activity thus far has been concentrated in the detached house segment (although multi-unit approvals (units, townhouses, apartments) have trended higher in recent months).

Compared with multi-residential construction, the report notes that detached housing typically responds more quickly to cyclical fluctuations.

Longer term, ACIF expects further support to be provided on account of government initiatives in social and affordable housing.

However, the report notes that the sector still faces headwinds in terms of higher costs, worker/skills shortages and concerns about insolvency. This remains the case notwithstanding that the severity of these challenges have eased somewhat.

It notes that these concerns are particularly prevalent for builders who operate within the higher density market.

Turning to civil/engineering construction, ACIF expects that activity levels will take a pause in 2025/26 as the boom in road projects begins to wind down (the boom in railway projects still has two more years to run).

However, the dollar value of work done will remain at exceptionally high levels of $141.4 million.

Further out, output levels are expected to grow further notwithstanding the passing of the peak of the transport boom as work continues to ramp up on energy and water projects.

Finally, a modest rebound is expected in commercial/non-residential building after subdued conditions in sectors such as accommodation, retail, offices are expected to see output levels contract by 5 percent this year. The rebound will be driven by healthcare work and other commercial projects such as train stations and data centres.

Turning to employment, the report suggests that the number of people who work in Australia’s construction sector is forecast to increase by 2 percent over both the current financial year and the upcoming financial year.

That should take employment throughout the sector from its existing record high of 1.36 million across 2023/24 to reach more than 1.4 million by 2025/26.

Beyond that, employment growth is expected to accelerate to three percent over the three years from 2026/27 to reach a new record of more than 1.5 million by 2028/29.

Whilst this will provide welcome opportunities for workers, the report acknowledges that further employment growth will add additional pressure to existing labour constraints.

Speaking of the overall situation, Andrew Scott, Deputy Chair of ACIF’s Construction Forecasting Council, said that the outlook is encouraging in light of the improved housing activity.

“While affordability remains challenging, recent data indicates that we may have passed the trough for residential construction,” Scott said.

“This suggests we may escape with a “soft landing” with new demand picking up just as backlogs created under the Homebuilder scheme reduce.”

 

Key growth sectors

According to the report, key areas of opportunity are as follows:

  • As mentioned above, the recovery in residential construction will accelerate from the middle of this year.
  • In electricity, the value of work will accelerate further from already massive levels as work continues to ramp up on generation, storage and transmission projects associated with the nation’s energy transition. Granted, lengthy approval processes and competition for funding and resources mean that not all developments which are currently under consideration will make it to construction. However, the sheer pipeline of work (and flow of new projects) means that further acceleration in activity is all but assured. All up, a Major Projects Database operated by ACIF using information from Cordell Connect (operated by Cotality) lists 795 energy projects which are either underway or in development/under consideration. These are worth a combined value of $1.229 trillion.
  • Elevated levels of activity are also expected to occur in water and sewerage on account of a large backlog of work which has built up over several years. This includes some particularly large projects such as the Ngarluma Water Desalination Project and the Alkimos Seawater Desalination Plant both in Western Australia – albeit with some other projects such as Upper South Creek Advanced Water Recycling Centre & Pipelines in New South Wales now nearing completion.
  • Whilst conditions are subdued throughout much of the non-residential building sector, activity in healthcare is going strong as governments continue to announce new projects and funding commitments in order to keep pace with growing health needs.
  • In the other commercial sector, elevated levels of activity are expected to remain as work continues to ramp up on the construction of data centres as well as reasonable amounts of work still to be done on transport facilities such as train stations, car parks and airports associated with the recent boom in transport investment.

 

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