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ACIF's Construction Forecasting Council latest forecasts show big differences in recovery by residential and non-residential building, and engineering construction, from the collapse of 2008.

To view the latest forecasts go to the CFC web site



LATEST CONSTRUCTION ACTIVITY FORECASTS

The health of the construction industry is good in parts, according to the latest forecasts from the Australian Construction Industry Forum's Construction Forecasting Council (CFC).

"Government spending is holding up activity in non-residential and engineering construction, whilst the difficulty of obtaining finance is depressing the private sector investment," said Peter Barda, executive director of the Australian Construction Industry Forum (ACIF).

"Private sector spending on non-residential construction is still depressed by lack of confidence, and a shortage of development finance, whilst government spending on education and health infrastructure has made up about half of the private non-residential activity lost through calendar 2008," said Barda.

"As the Building the Education Revolution spending runs out, we are expecting further falls in non-residential activity, until developers and investors turn from acquiring existing assets to developing new ones. We are forecasting modest recovery in the sector in 2011/12."

"In the residential construction sector, activity in new house building during 2008/2009 has been very strong, and will continue at reasonable levels, although lack of development finance continues to depress the market for apartment construction," he said. "Residential building in 2009/10 and 2010/11 will continue to be strong."

"Engineering construction has fallen markedly from historically high levels, but government spending on infrastructure, and expected spending on the national broadband network, are forecast to maintain high levels of activity, in part offsetting reduced spending on construction of mining infrastructure," said Barda.

In residential building while approvals have continued to slide in recent months, substantial pent-up demand remains for housing and will drive real growth although there is uncertainty over the impact of the scaling back of the First Home Owners Grant, said Barda.

"Demand is still there for housing: stocks still remain in short supply, and rents are continuing to rise," said Barda.

"And once the commercial developers re-enter the market and house price growth starts to improve, this sector will record strong growth," he said.

Engineering construction received a solid boost in the Federal Government's May Budget, with higher spending announced for power generation, roads, rail and the early stages of the National


Broadband Network (NBN) rollout, which should prevent a collapse of activity in this sector before the next economic upswing.

"Government spending and a return of mining infrastructure construction will see the cycle kick up in 2011/12," said Barda.

ACIF's Construction Forecasting Council (CFC) produces twice-yearly forecasts of building and construction activity, covering short, medium and long-term prospects for the industry.

These forecasts are based on modelling of the economy by KPMG Econtech, and include short-term to long-term forecasts (10 years). The CFC's latest forecast figures have been derived from the June 2009 quarter National Accounts and Australian Bureau of Statistic building approvals to the end of September.

WHEN WILL THE SECTORS TURN UP?

The chart below shows when the CFC expects activity levels across the three key construction sectors to return to growth.

Engineering construction will begin to show a rise in activity at the beginning of 2011/12.

The short-term outlook is that engineering construction levels will fall off from their all-time highs but remain above previous levels.

Government funded road construction will help to cushion the sector from the impacts of the GFC (lagged due to long construction times for engineering projects).

Mining sector construction is expected to fall 39% in the next 12 months from its peak, before LNG related construction commences in the medium term.

Energy sector set to be bright spot over coming decade. Future government policy on climate change needs to be decided to give certainty to this sector.

Residential building will remain flat until a solid rise in activity in 2010/11.

Residential building approvals have continued to grow but it remains to be seen whether the end to the boost in the first home owners' grant will halt the recovery.

After growth of over 20% in the June quarter 2009, residential approvals increased by a further 18.5% in the September quarter.

All categories rose solidly in the SepTember quarter (off low bases) thanks to record low interest rates and the government stimulus.

The investor sensitive unit/townhouse market appears to have stabilised but remains very weak.

In 09/10 residential building is forecast to fall by 1% but with a strong recovery coming in 10/11 with 9% growth.

Non-residential building will begin to show a rise in activity at the beginning of 2011-12.

Short term weakness for non-residential construction will continue in the short to medium term with only a slow recovery expected over the forecast horizon.

Office, retail and industrial categories areall forecast to fall by over 30% in 2009/10 with further large falls in 2010/11.

Total non-residential building to continue to fall in 2009/10 and 2010/11 before a recovery begins in 2011/12.

Non-residential construction continues to be dominated by government funded school and hospital building projects.