As demand for housing continues to ramp up, cranes dot the sky working on new office towers throughout Sydney and the state gears up for a massive program of public infrastructure investment, the building and construction market in New South Wales is running hot and is expected to continue to do so in the future.

Below is an outline of current market conditions and the near-term outlook for the state in terms of residential construction, commercial building, engineering construction and construction industry employment.

Residential

As is well documented, Sydney specifically and New South Wales more generally is the home of the national housing recovery as a combination of low interest rates and respectable levels of population and economic growth continues to release significant volumes of pent up demand. State-wide annual levels of housing starts have surged from a shocking low of 33,740 in 2012 to what the Housing Industry Association (HIA) estimates will be 48,680 in 2014.

Going forward, the HIA expects the good times to continue with starts reaching above 50,000 in calendar 2015, with approval data of late suggesting activity in the construction of large apartment complexes may have peaked but that there may be still be room for growth in the lower and medium density segments, especially in detached housing.

Longer term, the HIA expects activity to ease back but remain at high levels as a possible tightening of interest rates kicks in around late 2015, strong building activity eats into pent-up demand and supply-side constraints such as land availability become increasingly significant – a situation not helped by the recent pull-back in planned planning reforms.

Outside of new housing, the HIA expects the value of renovations activity to bottom out and recovery slightly. Rising house prices and consequent higher levels of homeowner equity will help, as will a general easing of financing availability.

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Commercial Building

With activity now in full swing on developments such as Barangaroo, the Darling Harbour redevelopment and the $1 billion industrial and heavy retail complex at Marsden Park, the commercial building market within Sydney and New South Wales is red hot.

Accordingly, Australian Construction Industry Forum (ACIF) expects the dollar value of work done to increase by 7.3 per cent in 2014/15 and remain at high levels thereafter amid a decent range of $100 to $200 million dollar value projects in the pipeline.

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Engineering Construction

Surprisingly, given the volume of big ticket items in the pipeline, ACIF expects the value of civil construction work done within New South Wales to drop back following a significant surge in road building activity in recent years across most sectors except for telecommunications, which will benefit from a ramp-up of work on the NBN.

Not surprisingly, other commentators disagree. BIS Shrapnel, for instance, expects a period of sustained growth following a decline in 2013/14 as major projects across coal, ports, roads and rail wound down. This growth is expected to be spearheaded by projects such as the $9 billion North West Rail Link, the $2.8 billion M1-M2 Link, the $1.6 billion Sydney Light Rail, the $3.6 billion first stage of the WestConnex road project, and several Pacific Highway upgrades.

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Employment

Not surprisingly, the benefits of strong conditions across virtually all sectors of the industry are flowing through to the sector’s workforce, which has expanded by a whopping 29,000 over the past 12 months.

Going forward, the positive outlook across virtually all sectors means current momentum within the labour market will most likely be sustained, with survey participants in the Property Council of Australia’s most recent Property Industry Confidence Survey, for instance, being more bullish about forward work schedules and employment intentions in New South Wales than in any other state in the country.

Particular beneficiaries will most likely be those in trades whose skills were less exposed to the resource construction boom in other states (such as bricklayers, tilers, etc.) and where there are not so many people now returning from the mines.

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