How Long Will the NSW Construction Boom Continue?

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Friday, October 16th, 2015
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For now, the fact that New South Wales and Sydney in particular is in the middle of a boom in construction activity is beyond dispute.

At a whopping 52,236, the number of houses and apartments for which ground broke throughout 2014/15 was well higher than at any other time on record, and was more than double the numbers achieved during the global financial crisis in 2008/09.

Following on from what was already a strong year, residential building approvals are up 30.4 per cent in the first eight months of this year compared with the same period in 2014, and approvals in the semi-detached and non-detached housing segments are up a whopping 44.8 per cent. Infrastructure is growing amid the state’s massive road and rail building program.

To be sure, on a dollar value basis, the overall value of construction work done is actually tracking sideways after several years of strong growth. That picture, however, is being distorted by the completion of a few large projects within the mining and civil sector, which being highly capital intensive in nature can create a misleading picture of activity when considered on a dollar value basis. Take out the impact of a halving in the value of resource work done and large drops in the value of work on electricity and water facilities – all of which are coming of large heights – and overall levels of construction activity were actually up by almost 11 per cent last financial year when compared to 2012/13.

nsw construction boom

Several factors are contributing to this. While lending requirements may be tightening and population growth slowing at a national level, monetary policy settings remain accommodative and the NSW maintains the second highest rate of population growth throughout Australia. The state’s economy has grown by a respectable 3.35 per cent over the past 12 months. The boom in home building activity is largely a response to what was previously a situation of undersupply following several years of low building activity. Money from overseas and especially from China continues to chase residential and commercial assets alike.

Property industry confidence is higher in New South Wales than in any other state except for the ACT, a recent Property Council of Australia suggests, with participants optimistic about near-term capital growth potential across almost all sectors – despite rising elsewhere, office vacancy rates in Sydney sit at five-year lows, implying reasonably ripe conditions for investment, albeit with significant volumes of new stock set to hit the market over the near term. That’s not to mention the massive transport building program now underway.

The benefits of all this are flowing through to the state’s construction-related workforce, which has grown by 17,800 over the past two years and 27,600 over the past three. Contract administrators, estimators, site construction staff and site managers or forepersons are in high demand, recruitment outfit Hays says – as are plumbers, bricklayers, carpenters, tower crane operators, experienced dogmen/riggers, traffic controllers and glaziers. While this is welcome news, the drawback is that a shortage of available skills is placing upward pressure upon trade availability and prices.

Naturally, there are caveats. The undersupply is now starting to erode, and even talk of a looming oversupply is starting to emerge in the overheated apartment market. Tighter lending conditions will curb some of the speculative development activity seen in recent times.

Still, Australian Construction Industry Forum (ACIF) remains optimistic, suggesting that construction activity throughout the state will edge up by around one per cent in 2015/16 off a very high base before holding steady over the two years thereon after and picking up again around the end of the decade.

Considering that a number of sectors are falling back, this is a good outcome.

nsw construction boom

Key areas of opportunity according to ACIF:

  • Activity in the booming sector of roads and transport will continue to grow amid work on projects such as WestConnex, upgrades to various sections of the Pacific Highway, NorthConnex, Badgerys Creek Airport, and the Northwest Rail Tunnel.
  • Notwithstanding fears about bubbles and oversupply, activity in multi-residential construction will remain at elevated levels while that in stand-alone housing will grow slightly off an already elevated base.
  • Activity in the building of hotels and accommodation units will grow strongly amid a good range of projects including the Anvil Creek Residential and Golf Resort, the Shaolin Temple Residential and Tourist development, the Sandstone Precinct development, the Four Points By Sheraton Hotel and the Golden Bear Lodge and Jack Nicklaus Golf Course.
  • Telecommunications activity will remain strong amid work on the National Broadband Network.
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