The demand for housing is projected to drive the construction sector growth in Australia

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The global pandemic outbreak in 2020 resulted in a long period of closed international borders. However, the population has continued to grow in Australia. During 2020-21, the net overseas migration was recorded at 85,000 according to a report from the Australian Treasury. This represented a decline compared to the year before. However, it rebounded quickly in 2021-22 to reach 150,000.  With the permanent migration cap set to increase to 195,000, the net overseas migration is projected to reach 235,000 in 2022-23. After adding the natural population growth in the country, the total population is set to increase by 365,000 on a yearly basis.

This annual increase in the Australian population means that the total count is projected to increase significantly over the next four to five years, thereby driving the housing demand in the country. Notably, the housing market recorded strong growth during the global pandemic outbreak. Many buyers took advantage of the low-interest rate environment, which boosted the buying capacity of the consumers, thereby driving growth in the residential construction sector.

From the medium to long-term perspective, the surge in professional income is also expected to drive the demand for housing, thereby assisting market growth. However, at present, the construction sector is facing headwinds from macroeconomic challenges. For instance,

• The rising interest rates, fears of recession, labor shortage, and consistent increases in prices of building materials have created a significant impact on the bottom line of construction firms, with many facing shutdowns of business operations. All of these challenges are expected to remain persistent from the short-term perspective, thereby affecting the industry's growth.
• In the September quarter, the construction input costs increased again in Australia, according to a report from the Australia Bureau of Statistics. While the rise in cost is at a lower rate, at 2.9%, compared to the last two quarters when the surge was recorded at 4%, the rise in prices is having a severe impact on the profit margins of construction firms.

Over the last 12 months, leading to October 2022, the input prices have increased by 16%. These prices have been largely driven by the rise in the prices of metal products. Timber windows, for instance, have recorded a growth of 6.8% in prices, due to the higher glass prices and ongoing supply chain constraints. Moreover, the prolonged unfavorable weather conditions in the region have further compounded the financial pressures for construction firms.

The resulting delays in project completion have ultimately impacted the cash flow for builders. ConsTrack360 projects that the construction industry in Australia would benefit from immediate financial support from the government. For instance,

• The construction firms and builders are seeking government intervention to protect them from solvency issues. This will assist the firms in completing their project pipeline, which they have been involved with before the costs started to rise significantly.

Furthermore, the Australian government is also looking to ease the labor shortage problem faced by firms and contractors. For instance,

• To bring the labor supply back into balance, the government is dedicating resources towards accelerating visa processing times. Over the next few years, ConsTrack360 expects a large pool of labor to enter the Australian market, thereby assisting faster completion.

While the industry is expected to remain subdued over the next few quarters, due to the various challenges faced by the construction industry, Constrack360 expects the industry to record strong growth from the medium to long-term perspective. The government assistance, coupled with increased spending on infrastructure projects, and the growing demand for housing in the country are expected to drive industry growth in Australia in the long run.

To know more and gain a deeper understanding of the construction industry in Australia, click here.