Australia’s non-residential construction industry has always been a ‘big thing’ for the economy, but in more recent years the industry has been suffering the hangover from the engineering construction binge (sorry, boom) which was the integral component of the resources boom.
The seasonally adjusted chain volume measure of total engineering construction work done peaked at an extraordinary value of $136.3 billion. That record peak occurred over the 12 months to March 2013. Over the subsequent three years, engineering construction activity has dropped by 25 per cent.
To put that in perspective, the average annual value of engineering construction activity over the last 30-plus years is just over $50 billion, so only half of where we are now in 2016. The duration and record magnitude of our record engineering construction boom means that the down cycle has still sucked a huge amount out of the Australian economy – current activity relative to the long-term average is effectively irrelevant.
It was always going to take a long period of time for the Australian economy to adjust to the post-mining boom era. Thanks largely to the record cycle in the new residential construction sector, as a nation we have avoided recession or even teetering on the brink of such a destructive outcome.
One focus that has been lost along the way is that opportunities have continued to gather steam within a weaker aggregate picture of engineering construction, while non-residential building has held up much better than often suggested. In short, the non-residential construction industry has some life to it.
Highlighting that point through detailed analysis and forecasts was the purpose of the quarterly Construction Monitor, the flagship report of Australian Construction Insights (ACI) – the consultancy arm of HIA Economics.
First launched a year ago, the fifth (winter 2016) edition of the ACI Construction Monitor highlights a number of opportunities within the non-residential construction industry. Public sector building and construction is strongly on the rise, as the Construction Monitor portended a year ago would be the case, driven by Victoria and New South Wales.
Within the unique geographical ranking of construction markets the report provides, the Construction Monitor places Victoria and NSW at the top of the league table. From a very low starting point, South Australia and Tasmania sit in third and fourth spot, respectively, with decent growth allowing them to pass the resource-rich states as the latter inevitably slide down the ladder. Note that the bi-annual HIA Housing Scorecard also places Victoria and NSW at the top of the residential construction industry league table.
Our unique assessment of geographical and sectoral conditions in the non-residential construction industry includes a strengthening outlook for NSW and Tasmania. Headlines regarding aggregate non-res construction activity tend to miss the opportunities inherent in particular markets.*
Speaking of missed opportunities, the focus on aggregate weakness also misses areas of relative strength in certain sub-sectors of the non-res construction industry. Our assessment in the ACI Construction Monitor is that there is a strengthening outlook for commercial construction in the areas of aged care buildings, entertainment and recreation facilities, agricultural and aqua-cultural buildings, and short term accommodation. Activity in the health sector is set to regather momentum from 2017/18.
While our national assessment of engineering construction conditions only places ‘Roads, highways and subdivisions' as a growth subsector, that’s not the case for NSW, SA, or Tasmania. For example, the category of 'Railways, bridges and ports' shows clear promise in some markets, including Tasmania. Sometimes the devil in the detail is a good devil and provides an omen for future opportunity and activity.
We have some way to go before national non-residential construction work rises above the sharp drop the economy has endured with regard to engineering construction activity, which rode the resources boom so very hard.
It is inaccurate, however, to presume there is no growth and little opportunity. The latest ACI Construction Monitor signals that there is considerable promise to focus on. This is reinforced by the geographical and sectoral forecasts updated each quarter.
In time, the national profile will again be once of a sustained recovery in Australia's non-residential construction industry.