World Economic Construction Outlook Part 3

Australia and New Zealand

Australia expects that the toll from COVID-19 lockdowns and restrictions will continue to defer new building projects in 2021, with the Australian Construction Industry Forum forecasting a drop of 3.2% this year.

That could result in the loss of 42,000 jobs in construction, with most losses in Queensland, New South Wales, and Victoria.

Construction sectors hardest hit by the pandemic will see the most profound declines. Home construction is likely to drop 34%. Home construction and apartment construction will undoubtedly be down and noticeable in Sydney and Melbourne. Entertainment and recreation will decline by 23%. Retail and wholesale trade projects are expected to be down 17%, education down 11%, and health care and senior care down 4%.

While some projects are in the process of finishing, the backlog in some sectors is drying up. However, though some sectors face continued challenges, the industrial sector shows promise for strong resiliency due to high government spending on infrastructure.

There are some bright spots. E-commerce is up and there is a reconfiguration and rebuilding of the supply chain. Expect strong growth in commercial building activity. Projections show the value of work increasing 4-6%.

Both federal and state governments are focusing on small, shovel-ready projects, though construction of railways, harbors, and bridges is also expected to increase by 15%. Water and sewer projects could see up to 20% growth.

An eventual return of engineering construction and residential building could lift building and construction work by 2.3% in 2022.

In nearby New Zealand, which was able to keep the pandemic under control better than most countries, expect growth in Gross Domestic Product of 5.7% in 2021-22. Its ability to control COVID-19 is enabling a faster economic recovery. However, slower net migration, household spending, and construction activity will remain strained for now.

Disruptions in the supply chain for building materials, construction equipment, and skilled labor could also raise costs and delay some construction projects.

Government stimulus spending could offset the reduction in investment for hospitals and aging care facilities.

As for housing, increased buying power made possible by low interested rates and a strained supply are fueling price increases. This trend is likely to continue as long as interest rates and housing supply remain low.

After last year’s decline in infrastructure and building construction, there will be new opportunities to address the challenges with housing, supply chain, materials shortages, and sustainability.

Business confidence, which has remained low in New Zealand for the past four years, should increase in 2021-22, driving more robust business investment.

A survey conducted by AECOM showed growth in optimism for both delivery and investment in building markets. It also revealed an openness to find creative solutions to:

·      Auckland traffic congestion

·      Shortages of building materials and skilled workers

·      Reform for a national housing market considered expensive by international standards

·      Sustainability, including climate change concerns, water reforms, and earthquake strengthening

·      Infrastructure finance and funding

·      Procurement concerns

Auckland shows the strongest sentiment toward building and infrastructure sectors, but all regions show improved sentiment toward new projects, including wastewater, potable water, and stormwater.

Problems Still Plaguing New Zealand

A lack of skilled workers and continued material shortages are the leading concern for New Zealand construction at present. Funding and cost increases are also of concern, as are poor procurement practices. The country competes with Australia and other nations for investment, building materials, and skilled labor.

One of the difficulties of bringing about solutions is the short electoral cycle of just three years in New Zealand.

Those surveyed by AECOM believe New Zealand’s procurement process is costly and over-burdened. There is also too much risk put on contractors, according to the survey. That is a topic that must be addressed. There are also concerns that the country is getting low value for what it spends on infrastructure and building, resulting from too many upfront costs of delivery.

The shortage of housing in New Zealand is immense and the construction industry is seeking ways to deliver more quickly, including fast-tracking permitting and increasing “urban intensification.” That is an approach that transfers urban areas into more compact forms with less dependency on automobiles and a shift to public transportation.

New Zealand contractors also want to make it easier to import building products from other counties to help deliver houses cheaper and faster.

Residential Construction to Improve in Australia

One forecast recently released states that residential building construction should improve in Australia this year due to better credit access. Also, the Reserve Bank of Australia has cut its interest rates, making credit cheaper.

Low-interest rates and the First Home Loan Deposit Scheme should drive growth, which is positive for the residential construction sector.

Commercial growth, too, is expected to continue over the next two years. Expect investment to improve for hospitals, leisure projects, schools and office space. Demands for warehousing should also continue to accommodate growth in e-commerce.

With the largest number of full-time workers than any other industry in Australia, there is enormous interest in seeing construction remain strong. The industry employs 1.2 million workers and another 440,000 in support service jobs.

Unfortunately, COVID-19 impacts have been substantial, which could lead to a loss in employment for nearly 636,000.

Once the virus is under control and there is once again robust employment, Australia’s housing construction sector should grow substantially by 2024-25, closer to pre-COVID projections.

Construction Risks in Australia

Australia is considering its construction risk factors and urging companies to put processes in place to look at, monitor, and adjust risks regularly.

Businesses must conduct comprehensive risk assessments and create risk-based mitigation action plans.

Infrastructure projects in Australia are getting larger and more complex, which means they are inherently riskier. Using techniques such as integrated project controls and data-driven solutions can help deliver projects more efficiently and effectively. Not taking the necessary steps for risk mitigation puts project deliveries at risk.

Overall, construction will be a mixed bag this year for both Australia and New Zealand. While the effects of COVID-19 linger, construction projects will suffer. But with infrastructure investment continuing, it should help losses in other construction sectors.

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