Lockdown restrictions and supply constraints associated with the COVID-19 pandemic continue to negatively affect the Australian construction sector almost two years on. Supply chain disruptions have increased the difficulty of sourcing key inputs, contributing to project delays. An influx of new construction projects in the current year, supported by the establishment of the HomeBuilder Scheme, have further stretched limited supply.
HomeBuilder Scheme
The HomeBuilder scheme provides grants to property owners to build or substantially renovate their homes. The scheme initially required construction projects to commence within six months to be eligible. However, the Federal Government has pushed back this timeline to 18 months, partly due to ongoing supply constraints. The move is projected to relive some pressures and allow the construction sector to undergo a long-term recovery. The scheme is only available to households and not companies or trusts. Eligibility for the grant also requires applicants to earn below $125,000 for an individual or $200,000 for a couple.
Supply constraints
A range of factors drive demand for the Multi-Unit Apartment and Townhouse Construction industry, including:
- Trends in urbanisation
- Housing prices
- Interest rates
- Availability of key inputs
Key inputs, such as timber, have been in scarce supply, which has delayed some construction projects. This factor has heavily affected the Multi-Unit Apartment and Townhouse Construction industry as townhouses, units and low-rise apartments often use timber inputs. This industry has significantly benefitted from growing urbanisation and low interest rates over the past five years. Rising housing prices have also supported demand for construction in this industry, as apartments and units are more affordable for first-home buyers.
Operators in the Australian Multi-Unit Apartment and Townhouse Construction industry derive a significant portion of their demand from metropolitan areas. However, an increase in the number of people working from home has caused many consumers to reconsider living in metropolitan areas. With workplaces adopting flexible working arrangements, many employees may no longer want to live in or near CBD areas. In particular, many families with children are opting for regional locations where they would work from home full time and benefit from shorter commutes. Rising housing prices have contributed to this trend, as consumers are able to obtain larger houses or other living arrangements for lower prices compared with city living.
Work in progress
The growing trend for people to relocate to regional areas as remote working options become more viable is forecast to constrain the Commercial and Industrial Building Construction industry’s growth over the next five years. Office construction is expected to account for 26.2% of industry revenue in the current year. As demand for flexible working arrangements increases, many inner-city workplaces are forecast to downsize or give up office spaces to reduce expenditure on rent and utilities. This trend is forecast to place downwards pressure on demand for office building construction.
Nonetheless, this trend may also represent an opportunity for operators in both industries to undertake projects in regional areas. Rising population in regional cities and towns increases demand for retail building construction. The Commercial and Industrial Building Construction industry has benefited from growth in demand from large supermarkets, such as ALDI, expanding stores across the country, especially into regional areas. The same trend is also prevalent among big-box retailers, such as Bunnings, Kmart and IKEA.
In comparison, operators in the Multi-Unit and Townhouse construction industry may experience more limited availability of regional projects. Councils are likely to deny permits for construction of large apartment buildings, as these buildings block scenic views. However, strong demand for residential property is forecast to drive multi-unit and townhouse construction. Low-rise apartment buildings may also be permitted in some larger regional cities. Despite projected growth in demand for townhouse and unit construction, competition for house construction will likely limit demand from consumers who have moved to regional areas from metropolitan cities. These consumers are likely to prefer larger spaces and many would be willing to spend the extra cash for house construction.
Alfabank-Adres reports used to develop this release:
