Industry Forecasts

Revised Building & Construction Industry Forecasts
the impact of the COVID-19 economic shock 

Prior to the onset of the COVID-19 crisis, Master Builders forecasted that the performance of the industry was set to be mixed over the next five years with infrastructure-related activity performing well and residential buiding recovering to stronger levels. However commercial building activity was set to fare less favourably and was forecast to lose considerable ground over the next few years. 

Key forecasts were below: 

 

With 1.2 million people employed directly by the construction industry and with research suggesting that a further 440,000 jobs in other sectors of the economy are dependent on construction work, our high impact scenario envisages that 464,300 construction jobs could be lost as a result of COVID-19 crisis,  and an additional 171,600 jobs lost in the sectors which depend on construction – a total loss in employment of 635,900.

Unfortunately the high impact scenario may be playing out with key data as follows:

  • ABS data for late March/early April identifying employment nationally down by 6.3% and in the building and construction industry by 5.3%.
  • Master Builders April COVID-19 Survey results indicating an average reduction of forward contracts across all sectors of 40%.

Master Builders has subsequently undertaken a root and branch revision to its February 2020 forecasts. 

These forecasts represent a major update to the set of projections to 2024–25 which were published in February 2020. The update is necessitated by the huge change in economic conditions which has unfolded since the beginning of March amid the global spread of coronavirus. It must be stressed from the outset that the economic environment is highly uncertain and that there is a strong possibility that the ultimate performance of construction could differ significantly from these forecasts.

The following tables summarise the significant downgrade to our forecasts for new home building and commercial building activity in light of COVID-19.

Updated Home Building Forecasts

With the COVID-19 crisis breaking towards the end of the 2019–20 financial year, we anticipate that the sudden and sharp nature of its impacts mean that new home building starts will hit a low of just under 116,000 in 2020–21 (compared with about 159,000) in our original set of forecasts. As stimulus unfolds and restrictions are lifted, activity is expected to recover during 2021–22. The tapering off of stimulus means that the recovery is likely to lose momentum during 2022–23 but thereafter the return to robust population growth and gains in employment will help propel new home building considerably higher and by 2024–25 activity will be close to reverting to the long-term home building trajectory set out in the February 2020 set of forecasts. 

A comparison of the updated and previous set of forecasts for new home building to 2024–25 are summarised in the chart and table below.

Updated Commercial Building Forecasts

The commercial building landscape is changed hugely by the crisis: private sector-led projects are likely to suffer due to the very uncertain economic backdrop. In particular, activities like tourism, recreation and entertainment have particularly poor prospects given the combination of enforced closures, restrictions on travel as well as the reduced willingness of large numbers of consumers to engage in non-essential expenditure. 

On the other hand, the public sector dominates important areas of commercial building like health and education and the short term prospects for these are much improved given that government stimulus is likely to be heavy here. 
The updated forecasts for commercial building are shown below. Overall, the huge reverses in private sector investment will outweigh the possible expansions in government driven projects and the commercial building volumes are likely to be quite depressed over the three-year period between 2020–21 and 2022–23. Thereafter, a reasonably emphatic recovery is likely to resume as the economy returns to its long-run trajectory.