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Master Builders Australia forecast mixed construction outlook

The Victorian Government has credited its Big Build as one of the drivers of its job creation boom.

The construction industry is facing a mixed outlook as transport infrastructure spurs on activity while the new home building sector continues to weaken, according to new forecasts released by Master Builders Australia.

According to the forecast, new home building hit record highs over the past decade thanks to a record inward migration and low interest rates.

A surge in new apartment and unit buildings was also especially pronounced during this time.

However, Master Builders Australia Chief Economist, Shane Garrett, said the recent slowdown in new home building is a result of microeconomic factors – tighter credit conditions, tougher financial regulations and the imposition of heavy stamp duty surcharges on foreign buyers.

“Underlying demand for new housing is still very strong with large numbers of new jobs still being created and interest rates now even lower than before. The pace of population growth remains brisk,” Garret said.

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“Consumer and builder confidence is the critical factor and it will take time for this to return, especially with house prices still falling in most markets. Our prediction is that new home building commencements will bottom out during 2020/21 at 167,444 – representing a 28.3 per cent drop on the 233,872 peak back in 2015/16.

“From there, we expect that the strong market fundamentals will drive new home building higher. By the end of our forecast horizon in 2023/24, new home starts are anticipated to recover to 187,658 an 11.9 per cent increase on the low point of the cycle expected in 2020/21,” he said.

The forecast also suggests the next few years will be softer on the commercial building sector.

Garret says demand for commercial building projects has been whetted by exceptionally low interest tares.

“A significantly larger population means that we need more schools, more hospitals, more shops and more restaurants. In addition, the strong gains in employment have boosted the amount of office building work making it over the line,” he said.

“We expect that the volume of commercial building across Australia totalled $45.75 billion during 2018/19, an increase of 8.0 per cent on the previous year.

“The favourable economic backdrop is forecast to propel commercial building forward by another 6.5 per cent during 2019/20. However, market activity is then expected to revert to lower levels. By the end of our forecast horizon in 2023/24, the size of Australia’s commercial building market is projected to be 8.9 per cent smaller than in 2018/19.”

Segments that are expected to see the toughest conditions include building for accommodation, offices and education, which are the parts of the market that have generally performed best over recent years, according to the report.

However, Master Builders Australia expects several segments of commercial building to grow over the period to 2023/24, including retail, transport and health facilities.

The rollout of major government transport infrastructure is expected to benefit thousands of small construction businesses across the country, according to the forecast.

“While latest data indicate that engineering construction activity has still been battling tough conditions, the eventual roll out of government-led infrastructure projects will see growth return in the near future,” Garrett said.

“We forecast that the volume of engineering construction work will expand by 12.5 per cent by 2021/22 compared with 2018/19. Thereafter, activity will ease back at the pipeline of infrastructure work comes to an end.

“At the moment, the actual volume of construction work underway is smaller than it was this time last year. While our forecasts do envisage growth returning, government can help by getting things moving on the ground with more urgency. There is particularly strong scope for this when it comes to small and medium-sized infrastructure projects,” he said.

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