Australia’s construction industry is constantly growing, with recent weeks revealing ever more pots of government funding for infrastructure and numerous new large-scale construction projects.
The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index which rose to 56.7 points in May, indicates industry-wide growth at the fastest pace in just over two and a half years.
Given that readings above 50 points indicate expansion and this is the fourth consecutive month of growth, Australia’s construction industry does not appear to be slowing down anytime soon. This positive growth applies to several parts of the industry, with expansion to be seen across building rates, engineering construction and overall employment growth.
New orders in particular are seeing record expansion rates, with the new orders sub-index reaching almost 60 points––the highest result in almost one and a half years. Crucially, this points to a positive forecast for the overall industry over the coming months.
Apartments Building on the Rise
Apartment building drove growth in the industry, with the sector's activity sub-index growing by 13.2 points––the sector’s biggest jump since November 2015. According to the Ai Group’s report for May, this reflects recent improvement in demand conditions, and the lift in new orders over the past two months.
However, whilst apartment building has boomed in the last year, house building activity in contrast has weakened. For the first time in five months, the sub-index on house building was negative, a clear sign that the housing sector is cooling.
The industry as a whole has seen stronger activity in the last few months, reflecting the number of building approvals passed through in 2017. This high number of building approvals as well as forward orders series suggest this boom in apartment construction activity is a trend that will continue well into next year.
According to Housing Industry Association senior economist Shane Garrett, the data “provides further evidence that the strength of apartment building is holding up for considerably longer than most of us expected.”
“A record number of new apartments commenced across Australia during 2016 and work on these will continue to support on-the-ground activity in residential building for much of this year.”
Engineering at a Nine-year High
Engineering construction was the second strongest performing area following apartment building, with its rate of growth at a nine-and-a-half-year high. This sub-sector’s increase is in line with the major boost in infrastructure activity, which outweighs the recent decline in investment in mining and heavy industry.
With big infrastructure projects, particularly in the transport industry, in the works for the year ahead, it is no surprise that there has been a significant growth in the number of people working in construction in Australia. There are currently over two million people employed in the sector, and we can expect this trend to continue as new projects are planned and executed.
A recent example of large scale infrastructure projects creating jobs can be seen through the recent announcement of a solar farm in Balranald, New South Wales. The project will create 250 construction jobs and, if successful, is likely to lead to the creation of more solar farms, and more jobs.
In addition to infrastructure projects, the housing booms in NSW and Victoria alone have created more than 100,000 jobs in construction since 2010, with approximately 22,000 jobs created in the last year.
The growth in Australia’s construction industry, the country’s third largest industry, is evident and compares favourably with those overseas. According the Ai Group’s report, the UK, Germany and Ireland are all experiencing expansion in construction, with only Ireland exceeding the rate of expansion recorded in Australia.
Despite continued cost pressures for construction businesses as a result of rising energy costs, supplier price hikes and relatively high commodity prices, it is likely that construction companies will have a positive outlook for the coming year.