Australia’s Residential Construction Sector Will Tank

Tuesday, May 17th, 2016
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Australia’s residential construction sector could be set to ‘tank’ over the next four years as high levels of completions diminish any remaining form of undersupply and tightening credit conditions force developer and investor activity to pull back, according to the latest forecast.

Releasing its latest forecast, Australian Construction Industry Forum said it expected the dollar value of work done in residential building to have grown by 8.4 percent in 2015/16 and to edge up by a further 2.2 percent to peak at $91.2 billion in 2016/17 as the industry works its way through an extremely strong pipeline of existing work, especially in the multi-residential sector.

Beyond that, however, ACIF says new home and apartment building activity will drop back to just over $80 billion by 2019, with the dollar value of work done dropping back by 2.2 percent, 5.9 percent and 4.4 percent throughout 2017/18, 2018/19 and 2019/20 respectively.

Worst hit will be the multi-residential sector, where activity will drop from $23.5 billion in 2015/16 to $19.3 billion by 2018/19.

New detached house construction will remain buoyant and at roughly similar levels to today for another two years before it, too, will start to drop back, ACIF says.

Outside of housing, whilst the commercial building sector is set to return to growth in 2017/18 following modest levels of contraction in 2015/16 and 2016/17, significant levels of contraction are anticipated within the engineering construction sector as resource construction work continues to drop back.

Overall, the dollar value of work done on all forms of construction is set to drop back from $212.017 billion in 2015/16 to $191.443 billion in 2019/20.

In its report, ACIF says the residential sector was being impacted by a number of factors.

As well as the simple fact that housing markets have moved toward balance and in some cases oversupply, these include the growing emergence of supply side constraints, a tightening of credit to both developers and lenders and a cooling in demand from foreign buyers amid regulatory changes impacting foreign purchases of domestic property.

ACIF chief forecaster Kerry Barwise told a conference on May 5 that the construction sector was overall was going through a ‘squeeze’, and that current indications were that the residential sector would ‘tank’.

‘”The property sector and building and construction is being squeezed under enormous forces of economic change …” Barwise said

“ … What we are about to see in residential construction is that growth is peaking and all the leading indicators are that it’s going to tank in a little while.”

In terms of areas of opportunity, transport appears to be a big winner amid a massive pipeline of road and rail projects in eastern states.

Good growth is expected in healthcare and tourism/hotels, meanwhile, whilst telecommunications activity will remain buoyant amid work on the National Broadband Network.

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