Australia currently has more businesses that are active in the construction sector compared with any other time in the nation’s history, new data shows.

The Australian Bureau of Statistics (ABS) has released the latest edition of its Count of Australian Businesses including Entries and Exits report.

The report uses ABN registration data from the ABS Business Register as well as business data from the Australian Tax Office to count the number of businesses which are currently active as well as that which have commenced and/or ceased to be active during a given period.

It  reveals that the number of active businesses which are operating in the Australian construction industry increased by almost 9,000 (8,949) in 2023/24. As a result, the number of construction businesses rose from 443,871 as at 1 July 2023 to 452,820 as at June 30 this year.

At this level, the nation has more active construction businesses compared with at any other time in history.

The data also suggests that construction business numbers are growing over the longer term.

Over the past four years, the number of active construction businesses that are in operation has increased by almost 60,000 to go from 394,219 as at 1 July 2020 to the current number (452,820) as at June 30 this year.

This represents a 15 percent increase over that period.

The data also reveals that:

• All up, the construction sector accounts for 17 percent of the 2.663 million businesses that were operational throughout Australia across all sectors as at June 30. As a result, there are more active businesses in construction compared with any other sector (see chart).
• Construction businesses have a relatively low ‘survival rate’ compared with enterprises in other sectors. All up, only 62 percent of construction business that were operating four years ago as at 1 July 2020 were still active as at June 30 2024 (see note below). This is slightly lower compared to the 64.1 percent of businesses that remained active across the overall economy over that time period
• Of new construction businesses which commenced operations in 2020/21, the three-year survival rate to June 2024 was 4 percent (see note below). This is slightly lower compared with the 50.1 percent three-year survival rate for new businesses across the economy.

(Note: caution should be observed when interpreting the ‘survival rate’ data referred to above.  The 62 percent/48.4 percent ‘survival rates’ for pre-existing/new construction businesses referred to above simply refer to the percentage of construction businesses that existed before 1 July 2020/came into existence during 2020/21 and which remain active with an active ABN as at June 30 2024.

The data should not be read as suggesting that the other 38 percent of pre-existing construction businesses that existed prior 1 July 2020 and 51.2 percent of new construction businesses which commenced in 2020/21 that are no longer active have ‘failed’. In addition to bankruptcy or insolvency, there are several other reasons why these businesses may no longer be active. These could include business owners either retiring, transitioning to other industries or returning to conventional employment. Business entities may also have become inactive in their previous form through restructuring or merger/acquisition activity.)

The increase in construction business numbers comes despite many businesses having been impacted by higher finance and construction costs as well as a slowdown in residential building activity. (Partly offsetting this, conditions remain strong in the market for civil and infrastructure construction.)

The data also runs somewhat contradictory to insolvency data from the Australian Securities and Investments Commission (ASIC).

That data showed that the number of insolvencies that were recorded in the construction sector surged to record levels of 2,977 in 2023/24. At this level, construction accounted for one quarter of overall insolvencies despite only accounting for 17 percent of the overall number of businesses in the economy.

However, the record number of construction businesses in operation is broadly consistent with other data showing that construction industry employment has reached record levels.

Oxford Economics Australia Economist Michael Dyer cautioned that data in respect of business entries and exits can be ‘murky’.

Nevertheless, he said that the increase in business numbers is consistent with current activity levels in some parts of the industry.

“Residential construction is a bit  subdued at the moment,” Dyer said, stressing that his personal focus of work revolves predominately around housing and residential building.

“(In addition,) Non-residential building is slowing down a little bit. Both (residential and non-residential) are coming in off a peak.”

“At the same time, we do have some pretty strong civil conditions continuing with the transport infrastructure boom.  So I guess broadly across the show, we are still building quite a bit and that is requiring both people and businesses to service that.

“And whilst we do look at some of those entry and exit numbers, I will admit that dissecting it is a little bit murky sometimes. What I will say is that the increase is probably is not massively out of line with what you are seeing in the sector in terms of things like employment growth.

“That is not overly surprising and it’s just reflecting those conditions. We have had a slowdown in some areas but overall, we are still building a fair amount.”

Speaking about factors which are driving the longer term growth referred to above, Dyer said that it is difficult to pinpoint any specific cause which has served as a primary driver behind this.

Whilst significant construction programs have helped, it is also possible that the data is being impacted by COVID stimulus measures as well as business support measures which helped enterprises to remain in business during COVID.

Asked about the factors lie behind the relatively low survival rate of construction businesses, Dyer cautioned that the murky nature of the data referred to above means it is difficult to read too much into the numbers with confidence.

Based on the ASIC insolvency data referred to above, however, he says that the number rate of businesses that are running into financial difficulty is ‘probably a bit elevated at the moment’.

Contributing factors include higher construction costs, higher debt servicing costs and the aforementioned slowdown in new building work.

This may be particularly difficult for smaller firms (especially in residential building) who may not have capacity to diversify their operations.

In terms of the outlook, Dyer says there are opportunities for construction businesses in several areas.

In residential building, a strong recovery in new home building is expected over the medium term.

Outside of this, Dyer notes that opportunities are likely to be present in several areas where there are expectations of strong activity levels.

These include data centres, healthcare facilities and Olympic related work as well as opportunities associated with the energy transition.

“We do see gradual improvement in conditions,” Dyer said.

“So those headwinds I was speaking to earlier -high construction costs, high borrowing costs, delays – we do expect them to gradually fade. We are forecasting an uptake in building activity in both residential and non-residential building toward the end of the decade.

“There will be a flow through as those headwinds ease as, say, the cash rate starts to fall and the rate of building cost escalation will decline. That will help to stimulate demand. It will also help some of those firms that may be struggling with repayments at the moment.

“Within that, there are probably some geographical and sector specifics in it. For example, data centres are going to be one of the growth areas over the near term. There is a very strong health pipeline around the country. Also, the Olympics build-out (will be significant) toward the end of the decade.

“On the engineering side, things like your renewable transition are not going to go away anytime soon.

“There are going to be some interesting things happening as the sectors interact with each other.

“That will probably drive some of those opportunities as broader sector conditions improve.”

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