Construction Hopes Hinge on Non-Residential Building: BIS

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Thursday, August 1st, 2013
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According to a new report, the construction industry in Australia is relying on an upturn in non-residential building in order to pick up the slack as mining investment winds back.

In its Building in Australia 2013 report, BIS Shrapnel says it expects a generalised upswing in building activity to gather momentum over the next two years. The pace of recovery, however, is expected to be uncomfortably slow and to be felt unevenly across all states.

BIS associate director Dr Kim Hawtrey says it remains uncertain whether or not a general recovery in building activity will be sufficient and occur fast enough in order to counteract the anticipated winding back of resource construction work.

“We’re in for a real nail biter,” he says. “We see an upswing in building but it will be uneven and slower to get going than usual. The next 12 months will be a critical test of how quickly the construction sector can take on more of the heavy lifting, and the Australian economy will remain balanced on a knife edge.”

Perhaps surprisingly, BIS says it expects a two per cent drop in new housing starts in 2013/14 as improvements in starts in high-population growth states such as New South Wales, Queensland and Western Australia are offset by falling starts in over-supplied southern states and gains in single unit housing are counteracted by a contraction in multi-residential building.

While acknowledging that the population is growing, BIS says changing demographic patterns – such as an aging society – means overall population level increases may not necessarily translate into as much demand for new housing as might be expected.

Meanwhile, a combination of factors, including high levels of household debt, concerns over the global economy, planning restrictions in some states and a lack of available land supply have meant the sector is not responding to the ‘antibiotics’ in the way it normally would.

forecast changes in value of commencement

Residential building is, however, expected to pick up throughout 2014/15 (an increase of nine per cent) and 2015/16 (up four per cent) before dropping back again in subsequent years.

By contrast, BIS says non-residential building will strengthen at least in the short term with the value of work in this sector increasing by seven per cent in 2013/14 as a temporary bounce in commercial areas such as office, retail, warehouse and hotel building (up 16 per cent) compensates for falling levels of social and institutional spending on public sector projects.

Beyond that, however, three years of decline are expected as a number of hospital projects drop out of the system and businesses remain wary about new developments amid ongoing economic concerns and challenges regarding access to finance.

Overall, BIS says it expects the value of national building commencements to grow by three per cent in 2013/14.

Expectations of BIS contrast with that of others, some of whom see a shorter term recovery in residential building but a more subdued outlook for the non-residential sector.

In its most recent three year outlook, for example, Master Builders Australia says it expects the number of housing construction starts to jump from 145,200 in 2012/13 to 164,000 in 2013/14 before reaching 179,000 in 2014/15.

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