October 11, 2018/ News
Australia's residential construction boom is coming to an end.
Trends in this section of Australia's construction industry have shown slowed activity, and may mark the beginning of troubling times for one of Australia's most economically significant sectors.
According to the Australian Industry Group's Performance of Construction Index (PCI), performance has dropped to 49.3. This decrease of 2.5 points from the level reported in August highlights deterioration in activity, as the PCI's distance from 50 indicates how rapidly the industry is growing or shrinking.
The main factors that have contributed to the decrease in residential construction include, a 9.4% drop in building approvals, weakened new home sales, and the tightening of home loan lending standards.
The largest decline in residential construction is in apartment building, due to the completion of many apartment complex projects, decreased investor demand and oversupply in the market.
Impact of Declining Residential Construction
Construction is one of Australia's largest industries and its declining performance will have a very significant impact on the country's economy.
If the downturn in residential construction worsens, it could lead to increased unemployment around the country, decreased consumer confidence and spending, and impede national economic growth.
Employment will experience the most immediate and severe impact of this slump in residential construction activity. The construction industry employs approximately 1.19 million Australians, making it the third largest employer in Australia, just behind retail and health care which employs 1.27 million and 1.68 million respectively.
With demand for construction workers weakening across the country, many tradesmen and labourers will be facing job instability or even job loss. This will force a number of residential construction workers to make the transition to civil construction work, such as road and rail projects. However, not every displaced worker from the residential sector will be able to be absorbed by these engineering projects, as they may not possess the necessary skills to successfully switch over.
Growth in Government-Backed Civil Construction Projects
However, it's not all doom and gloom for Australia's construction industry as a whole. Despite the waning residential construction sector, engineering construction backed by government investment has shown growth, and is expected to continue in the foreseeable future. Greatly juxtaposing residential construction's dropping PCI, the PCI of engineering construction jumped 10.7 points to 65.7, which highlights rapid expansion.
There has been a notable shift in government expenditure, with a distinct focus on funding infrastructure projects around the country. This has been spurred by the need to upgrade existing infrastructure, or develop new infrastructure, that is able to accommodate Australia's ballooning population.
There are a number of infrastructure construction projects currently underway and in the pipelines.
Some of the most notable civil projects, include:
- Sydney Metro
- Western Sydney Airport
- Parramatta Light Rail
- Melbourne to Brisbane Inland Rail
- Melbourne Airport Rail Link
- Melbourne Metro Tunnel
- Cross River Rail
- Brisbane Metro
- M1 Motorway Upgrade
- Great Northern Highway Bindoon Bypass
With many of these civil construction projects expected to span over a few years, and require regular maintenance and upgrades beyond completion, this area will provide relative job stability.
Civil construction projects are also dotted throughout Australia and prevalent in both metropolitan and regional areas. This means that job opportunities and economic prosperity will be fairly evenly spread throughout the country, instead of being concentrated in only a few major hubs.
It's only a matter of time before we witness the full impact that the downturn in Australia's residential construction sector will have. However, civil construction will continue to be a major source of employment and growth, and help offset this rough patch.
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