5 KEY TAKEAWAYS | ACIF Forecasts Briefing & Panel Discussion
Trying to speculate what a post-COVID-19 world will look like is difficult enough. Predicting how Australia’s construction industry will shape up, based on possible scenarios likely to play out in each state and territory, is considerably harder. Since its launch in 2002, the Australian Construction Industry Forum (ACIF) forecasts have become a primary source of market information for the building and construction industry in Australia.
The ACIF Forecasts provide the industry with a relevant and credible ‘compass’ for upcoming demand for work across all sectors, including major projects, as well as what is happening with construction costs and labour requirements. ACIF Chief Forecaster Kerry Barwise sat down with a panel of industry experts to offer a look into the latest industry forecasts. If you missed the live session or would simply like a recap, here are the key insights that came out of the session from our virtual 2021 Be Summit.
1. Top ACIF Forecast Takeaways
The session opened with Kerry Barwise, Managing Director of FTI Consulting & ACIF Chief Forecaster, running through the latest ACIF Forecast, letting us know that there will be a new released in November later this year. The top points to take away from this report include:
- Not always a picture of doom and gloom – WA is exhibiting a resilient economic base
- Sectors to see falls in construction activity of over 10% – accommodation, recreation, offices and entertainment.
- Total building and construction work to grow by 2.7% this year.
- Residential and non-residential building activity will be a drag on growth in 2022, small decline in total work done of 0.7%
- Engineering construction and infrastructure has been a key part of the fiscal response to support development – it will drive growth due to an upturn in utility construction, although the withdrawal of the NBN rollout will negatively impact this sector as there is no replacement.
- There is a bright future when it comes to ‘other commercial activity’ which includes carparks, the new Metro tunnel project and buildings to support the increasing shift to e-commerce.
- In the non-residential sector, retail & wholesale trade have sustained a downturn, whilst industrial has surged upwards. Bottom line is they expect activity to drop off from the peak in 2020 and slide down ever so slightly over the next 2-3 years with most of those changes in areas more sensitive to covid (NSW & VIC).
- Changes in demand for office space is going to leave long-lasting scars.
- Resilience in employment with growth in public sector, health, construction
- Surprising how strong the labour market is – clawing back on unemployment and now at 2-3% over where we were at the beginning of the pandemic
2. Issues in Product Supply Chain
Nerida Conisbee, Chief Economist at Ray White Group, explained that the shortages in building material supplies are occurring at an international level due to the pandemic restrictions, but they are also happening locally due to the recent bushfire affected areas, for example in the timber industry.
Marc Tessari, New Business Analyst at Probuild, discussed the issue of rising costs and the pressure around steel, timber and logistics, “we will see a 100% increase in price both structural and reinforcement over a 12 month period,” with container cost also being a factor. We have already seen “almost a 400% increase over the last 12 months.”
3. How do Border Closures and Immigration Restrictions Impact the Housing Supply Chain?
Tim Lawless, Research Director at CoreLogic Asia Pacific, explained how in Australia and certainly before the pandemic, 60% of migrants are temporary and 40% permanent. However, the immediate demand for both groups is rental housing. During the pandemic there was a huge hit to rental growth in Australia, particularly in high rise apartments in urban settings. We are now seeing growth thanks to low interest rates unleashing demand and the rental market has started to surge at 8% per annum, the fastest growth rate since 2008.
“The pipeline for demand is dying to be restored,” said Tim, but once the immigration tap gets turned on, the flow will be into renting rather than buying, “Foreign students will be one of the first cohorts to come in and increase rental demand.”
4. The Future of Non-Residential Activity
“We were probably a little under-optimistic about the growth in aged care – trade off between retail, industrial and other commercial – hard to say where it’s all going to land,” says Kerry.
Tim also had a positive outlook, saying “it’s inevitable we will see new office buildings…there won’t be a lot of issues in premium grade stock,” he said, continuing that the weakness is coming from c/d grade stock.
Nerida stated “it’s hard to work out what is going to happen, with vacancy for offices at a 12 year high.” She explained that there is a wide disconnect between how investors are looking at offices versus how tenants view it. Nerida then went on to discuss a recent boom study which gathered information on what people would like to remain in-person and what is preferred online. Responses concluded that celebration, retail, education and fitness were wanting to remain in person, whilst business and government is increasingly desired to be conducted online, highlighting the demand levels for construction in these areas.
Marc commented that during his work at ProBuild, they “expected to see projects paused, but that just hasn’t been the case. Low borrowing costs and builders margins have kept costs under control in order for developers to continue.”
5. The Residential Outlook
The main key points raised regarding the residential sector in the latest ACIF Forecasts include:
- Fiscal stimulus and monetary support has worked with remarkable surge in approvals and values, to a record level.
- Initiatives like Homebuilder have moved forward the demand
- It is more important to get a house right now especially with more possible outbreaks
- We will see a 20% spike in housebuilding
- After the spike it will drop down in 2022, – 2023 depends on interest rates, policies and sentiment
- NSW was already in a very significant downturn in residential building
- Has been an unexpectedly strong recovery would be in WA, Qld, Tas, SA and ACT
First home buyers are pulling back, however “We’ve seen record levels of renovation approvals across Australia in the last year,” stated Nerida, Australia’s most quoted property economist, “we clearly saw the overwhelmingly positive impact of the Homebuilder initiative” in new residential construction.
“We are seeing the housing market remaining strong,” Tim discussed, stating how March saw a peak rate of growth. He continued that there has been a slow down by markets like Sydney and Melbourne which is easy to attribute to COVID-19 and lockdowns, although it has more to do with affordability – household incomes are rising at 1.9% year on year but at no match to housing prices which are rising at 19%. “A tighter credit situation would be the next headwind the market will be facing…there will be a sharper reduction in growth rates if we see credit rates tightening up.”
Watch the full discussion below!
- Kerry Barwise | Managing Director & ACIF Chief Forecaster | FTI Consulting
- Bob Richardson | Managing Director & Co-Founder | XMIRUS
- Nerida Conisbee | Chief Economist | Ray White Group
- Tim Lawless | Research Director | CoreLogic Asia Pacific
- Marc Tessari | New Business Analyst | Probuild