Construction industry to decline by 8%, but recovery underway

The construction industry is set to decline by 8% during the current financial year, with building construction set to fall 2% during 2010-11 due to financing restrictions, but the result is actually a positive sign according to a new report.

The new BCI Australia report on the construction industry reveals the Government’s Building the Education Revolution program is still helping the sector survive, but demand is still low in the commercial and industrial sectors.

BCI national research director Damian Eastman says the result is actually a positive one, and suggests the industry is beginning to recover on its own standing as financing becomes easier to acquire.

“In some ways it’s actually a positive sign, which sounds a bit strange, but if you look at all the education stimulus money being taken out of the system, these companies are no longer using millions per year on that and we are seeing residential projects coming back into the system.”

The report reveals total construction activity is set to grow by 3.9% during 2010-11, including major infrastructure projects, but that total building construction excluding detached dwellings will actually continue to fall by 2%.

Building construction, as defined by BCI, includes aged care, commercial, community, education, health, hospitality, industrial, recreational, residential and retail construction.

The current financial year’s result of an 8% decline is a marked improvement from last year, which saw industry activity fall by 12.4%. Building construction has been the major factor holding the industry back, falling 18.1%.

Additionally, the report claims that the non-residential construction sector, which was worth $30.9 billion during 2008-09, would have fallen by nearly 30% without the Government’s stimulus.

Victoria is set to lead the construction market in 2010, with new starts expected to grow by 40%. However, starts are expected to fall by 24% in New South Wales, by 3% in Queensland and the Northern Territory and by 17% in Western Australia.

South Australia is set to receive a boost, with starts expected to rise by 11%. Additionally, infrastructure construction should help the industry with the sectored expecting 8.4% growth this year.

Eastman says over the next year, the residential and aged care sectors will be the areas experiencing the most growth as developers attempt to fill a shortfall of houses and more Australians head into retirement.

“There are some states that will perform worse than others, but what we expect to see over the next year is an uptake in the amount of multi-dense residential areas being built. However, there will still be some restrictions in this area as Government planning issues will hold some developers back.”

“The main problem here is financing. There is no doubt that the banks have a higher bar for developers to jump than previously, and these projects really have to stack up financially.”

While residential activity should grow this year, Eastwood says commercial and industrial construction will still decline as demand remains low for new major projects. “There still isn’t enough demand in these areas”.

The report suggests Victoria will lead the building industry out of the crisis, with the state’s level of deferrals and abandonments at 11% during the first quarter, seven points under New South Wales.