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Upswing Cycle in Total Construction Work Done Now Underway: House building boom occurring together with multi-year surge in road & rail projects
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In our first Newsletter edition of 2022, we look ahead to the developments we expect to come to the fore in each sector of the construction industry. After three years in decline, an upswing cycle in total construction work done is now well underway. Our newly updated forecasts indicate an 8% increase in the year to June 2022. Construction activity in calendar 2022 is expected to be 9% higher than the year before. We forecast a $230 billion peak to be reached in 2022/23, just $3 billion shy of the previous 2017/18 peak (all values in 2018/19 prices).
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Australia is currently coming to the end of an extraordinary boom in detached house building, combined with a small improvement in multi-unit residential building (multi-res). The key factor has been the big boost to affordability from low interest rates and government incentives; primarily the Federal Government’s HomeBuilder program, The boost to house building has been particularly marked in regional areas. The total increase, in terms of numbers of dwellings, has been greater in capital cities, but in percentage terms, and compared to a history of trend decline, the boost to regional areas has been proportionally greater.
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In non-residential building, a rebound in business investment in 2021/22 will push the total value of work done to a new high peak of $51 billion (in real terms). Looking ahead however, construction activity is forecast to fall in each of the five years to 2025/26. This downturn was anticipated prior to the outbreak of COVID-19, due in part to the usual lumpiness of investment in business space (with additions to supply frequently exceeding short-term requirements).
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Transport construction is currently in the midst of an extraordinary upswing cycle. We forecast the value of work done to rise 58% from $31 billion in 2020/21 to a peak of $49 billion three years later (all prices in 2018/19 constant prices). The two key drivers of this growth include a collection of big capital city projects in road and rail, as well as a ramping-up of urban renewal, maintenance and improvement programs, (including arterial road upgrades and level crossing removals).
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The utilities construction sector is primed to have its third boom in a ten year period, forecast for 2021/22 and 2022/23. Much of this growth stems from the acceleration in large-scale battery storage, a continued process of decarbonisation that has given impetus for greater demand for renewable electricity generation and transmission route improvements.
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Strong construction in other minerals, driven largely by iron ore projects, is the main contributor to near term growth in resources sector construction. The better than expected rebound in the world economy, post the initial 2020 global restrictions, has caused improved demand for minerals and has lifted most commodity prices. Oil & gas construction in Australia is mainly related to LNG projects, and the LNG price is linked to the oil price. So weak prices and falling demand during the pandemic caused a pause in the next round of LNG projects. A recovery is expected to begin in 2022/23 and last through to 2024/25.
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For more detailed forecasts and analysis please subscribe our report – Australian Construction Outlook – Overview. This report provides a summary and high-level forecasts on each of the sub-sectors of construction, adding up to total construction activity.
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