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Large rise in construction work expected during 2023
High rainfall, rapid cost increases and various shortages have delayed work from 2022 to 2023
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The Australian construction industry entered an upswing during 2021, but shortages and delays associated with the COVID-19 pandemic, high cost inflation, and very high rainfall during 2022, have all supressed the expected recovery in activity.
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Leading indicators, such as approvals and commencements, increased substantially during 2021, following a downturn of 2018-2020, but the value of work done has only lifted marginally, due to the various constraints.
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The value of all construction work commenced increased by around 20% in 2021, but the value of work done during the year to June 2022 only increased by 1.5%. We estimate a total increase of 4.0% in construction activity in the year to December 2022 (in real terms), with growth in activity estimated to have improved somewhat during the second half of 2022. We expect a robust increase of 17% during the year to December 2023.
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After reaching close a record high in 2023/24, total activity is expected to trend down gradually for the following 5 years, remaining close to the peak all the way to 2027/28.
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A house building boom has led the latest upturn, with rapid growth driven by the Federal HomeBuilder scheme, state government incentives and sustained low interest rates. While leading indicators (approvals and starts) of residential building have already started dropping sharply, work done will remain high into 2023 due to a large backlog of work.
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Most of the growth in activity will now be driven by non-residential building and engineering construction, with the main drivers of the upturn being:
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- A strong upturn in non-residential building during 2022/23, driven by previous strong commencements of commercial and industrial buildings, big government health building programs in the most recent budgets, and accommodation building as tourism returns,
- A multi-year surge in road and rail infrastructure, which got started during 2021, and will build to a peak around 2024,
- Another wave of renewable energy construction has begun, this time including a large investment in battery storage, and
- Resources construction is expected to continue rising, driven mainly by LNG projects and critical minerals investments.
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The previous delays in construction will contribute to the upturn, as the constraints begin to ease. These delays will intensify the upturn in non-residential construction over the next year. Additionally, there is a large backlog of work in the residential building sector that will sustain construction at high levels, despite falls in commencements, when otherwise there would have been a downturn.
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If your organisation requires help with project cost escalation forecasts, please get in touch with us, at info@macromonitor.com.au.
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Our most recent reports:
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Australian Construction Cost Trends
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This report examines the outlook for construction costs, in detail be sector and type of input.
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2023.
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Australian Regional Construction Outlook
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Our latest regional forecasts for residential building and construction have just been released.
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Australian Construction Materials Forecasts
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Our latest forecasts assess the implications for construction materials demand of the current outlook for building and construction.
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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