Will Low Population Growth Hinder Construction in Tasmania? 3

Monday, June 15th, 2015
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Of all the factors which have been responsible for weak conditions within Tasmania’s construction market over recent years, few have been as fundamental as the state’s almost complete absence of population growth.

This lack of growth has been largely responsible for its clear lack of any significant demand drivers for new residential construction or civil infrastructure and has also been a factor in poor overall economic performance which has limited demand for new office, industrial or retail space.

Whereas the national population overall grew by 1.6 per cent in 2013/14, for example, according to ABS statistics, that in Tasmania edged up a mere 0.3 per cent. Between December 2011 and June 2014, fully 6,148 people (net) left the state for other states, a phenomenon which has almost entirely offset modest natural increases (births minus deaths) and a modest net international migration intake. At an average age of 41.2, the state’s population is also the country’s oldest.

The impact of this on the construction market and on the broader economy is clear. As of December 2014, the state’s economy was smaller than it was four years earlier, and the current unemployment rate (7.3 per cent) is well above national averages. Housing starts were lower in 2013 and 2014 than at any other time over the past decade.

In response, the state’s government is trying to attract more people. Between now and 2050, it wants the state’s population to grow from around 515,000 to 650,000. On April 30, it launched a discussion paper asking residents how the state could better attract people from interstate and encourage younger Tasmanians to stay.

In that context, recent confusion about near-term population forecasts has taken on added significance. Whereas the most recent population projections released by the state’s Treasury Department last year show population growth of around 12,600 over the four years spanning December 2014 to December 2018, this year’s Federal Budget papers put the figure at just 5,000 overall over that period (or around 1,000 per year), with the state losing a net of 1,700 each year to interstate migration. At that rate, it would take the state 135 years to reach targets the government is trying to reach in around 35 years.

This has implications for the long-term outlook in housing and infrastructure construction. Already, assuming median range ABS projections for population and median range income growth projections come to pass, the Housing Industry Association reckons the state needs only 1,450 new homes between now and 2050. Given recent build rates of more than 2,000 new dwellings in nine of the past 10 years, that implies the state is building far in excess of its requirements. Should the Federal Government’s four-year projections come to pass, the state would presumably only have to accommodate only 1,000 more people each year for the next four years. Long run demand for new infrastructure and potentially, new commercial space would also be impacted, especially as lower levels of population growth continue to impact the state’s overall economy.


For now, however, building activity seems to be picking up. Driven largely by government incentives, the residential sector has seen approvals granted for a whopping 688 new houses and apartments during the first three months of this year – up 33 per cent on the previous corresponding period in the year before and almost double the 360 approvals recorded during the first three months of 2013. That immediate momentum received a further boost on May 24, when the government announced further extensions to its incentive program.

In the commercial and civil space, activity is finally picking up after several years of decline. Aside from the redevelopment of the Royal Hobart Hospital, recent projects to get going include the redevelopment of the Myer building in Hobart and developments including Parliament Square, MAC01 hotel and a large student housing project for the University of Tasmania.

Combine that with a number of projects scheduled to start in 2015, including the UTAS Performing Arts Center, the Salamanca mixed use development, the Macquarie Street Hotel, the Hobart Airport extension and the Midland Highway upgrade, and it becomes clear that near-term activity is set to rise.

In hotels, as well, enquiries regarding new developments are on the rise amid what the Office of State Development says will be a shortfall of between 651 and 1,227 rooms in Hobart between now and 2020.

While these developments are generally welcome overall, they are reigniting fears about shortages of trades in some areas. Although modest building conditions have meant that trade supply has generally been sufficient across most areas in recent years, the most recent government report suggests that shortages already exist in areas such as stonemasonry, glazing, plastering, and roof and wall tiling as well as professions such as civil, mechanical and electrical engineering.

With around $700 million worth of major project work set to be rolled out over the next 18 months, Master Builders Association’s Michael Kerschbaum says there is ‘very real potential’ for shortages to occur, although quantity surveying outfit WT Partnerships reckons still tight competition will limit trade price increases to less than two per cent per year over the immediate future.

Moreover, in housing at least, the apparent lack of underlying demand does cast into doubt the long-run sustainability of the current rebound in new construction, which is largely being artificially driven by the state’s aggressive home owner incentive scheme.

For now, Tasmania is experiencing an upturn in building conditions.

How long it will last will depend largely on the state’s ability to find ways to put the economy on a sustainable growth path and to attract and retain sufficient numbers of skilled young people in order boost its skill base and boost demand for new housing and infrastructure.

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  1. thomas vesely

    perhaps Tasmania could become a refuge from the over governed mainland ?
    i for one am looking for a respite from what passes as a political system.

  2. thomas vesely

    preserve the natural beauty,
    it will soon become priceless !

  3. Tony

    Population growth and indeed GDP growth may make the construction industry (and media industry) better off. But population growth itself will not make Tasmanians better off. It is GDP growth per capita that matters. Tasmanians, like anyone else in Australia, will most benefit from increases in the other P's – participation and productivity. These P's are what really build wealth. And unlike poor commuters in growth-frenzied western Melbourne and Sydney, Tasmanians' wellbeing will be miles ahead if they continue to lead Australia beyond the "population growth=good" mantra.