ACIF warns of big changes for building and engineering construction

Australian Construction Industry Forum (ACIF) released its latest forecasts late November, with a detailed analysis of major variations since its last forecasts were published in July. The forecasts outline the changes in demand for the next decade for residential and non-residential building and engineering construction — and therefore the employment prospects of the 1 million Australians working in the industry.

The latest forecasts shave between $2 billion and $4 billion per year for the next three years from future construction activity ACIF had forecasted in July 2015. This largely reflects a forecasted dip from a peak in residential building spending, and the continuing decline from the peak in engineering construction.

Australia’s macro story is changing, and this affects building and construction requirements. Population growth rates have been revised downwards reflecting falls in immigration from recent peaks. The reduction in growth in the working age population has profound implications for future employment, unemployment and economic growth.

Despite the large contraction in aggregate work done last year, employment in construction activities increased by 1.4% to 1,043,000 jobs. It appears that growth in labour-intensive residential building has more than offset the decline in more capital-intensive engineering construction.

Many additional projects have been added to the ACIF Major Projects in the period between the July 2015 and November 2015 forecasts. The Australian Construction Market Report for November 2015 includes a table showing the number of additional active projects by state and for Australia. It also shows the total value of the additional projects by category.

Residential building

Residential building peaked in 2014–15 at 186,000 completions — which is much higher than anticipated, and more than we have ever seen in history. This surge was due to low interest rates and so was broadly experienced in every state and territory. Growth in the booming subsector that includes townhouses and apartments will halve in some areas in the coming years. The ACIF forecasts for November 2015 show where and when the fall from the peak will be most felt, and in what subsector.

Non-residential building

Non-residential building fell by 0.3% last year — a loss of $122 million in work done — with further reductions to come. However, three subsectors in particular, health and aged care, offices and retail and wholesale trade, will reverse the trend due to non-mining business investment, and will grow in 2015–16.

Engineering construction

Engineering construction activity surged over the last few years peaking at $129 billion in 2012–13, driven by investment in mining and heavy industry as well as an expansion in related infrastructure. The investment phase of the mining boom has come to an end and the levels of engineering construction activity are now falling. However, infrastructure investment across Australia is projected to be sustained at current levels or grow.