It’s been a tough year for most of us.
Businesses and communities around the world have been devastated by the health threat of COVID-19, as well as the social distancing restrictions that curb this risk.
Thankfully, as an essential service, the Australian construction industry has been spared the worst of this immediate pain (compared to other sectors).
But we’re not out of the woods – far from it.
During the peak of the pandemic, the Australian Performance of Construction Index (PCI) hit its lowest ever point – indicating serious contraction at 21.6 points for April 2020.
“The fallout from Covid-19 played havoc with the already weak domestic construction sector in April,” said Peter Burn, Head of Policy at Ai Group.
Although there’s no end in sight for the disruptions, we have unique opportunities too.
This article looks at the construction outlook (2020 and 2021).
But before we talk about the future, let’s look at the current situation: how the global pandemic has hurt our industry, as well as positive developments that we can feel hopeful about.
Latest key construction performance indicators
(updated October 2020)
- September 2020 Performance of Construction Index: 45.2 points (7.3 points higher than the August PCI). Conditions have improved in all states except for Victoria.
About the PCI: This is a seasonally adjusted national composite index that represents construction activity, employment and new business. A score above 50 indicates expanding activity, but a score below 50 indicates contraction (the lower the number, the stronger the decline).
- Total construction value of completed work down by 2.2 per cent from June 2019 quarter to June 2020 quarter (Australian Bureau of Statistics August report).
- Wider context: global construction activity fell by around 10 per cent during the first half of the year, due to lockdowns and restrictions (Oxford Economics reported in Sourceable).
Negative impact of COVID-19 on the Australian construction industry
Widespread job losses, anxiety, low productivity and depleted morale – so many construction workers are feeling the devastating repercussions of policies that are designed to keep coronavirus infection rates under control.
Productivity is low as construction workers have been forced to change the way they operate to meet social-distancing requirements implemented by the Australian government, or state counterparts.
This has been felt particularly strongly in Victoria, since stage four lockdown commenced. Victorian builders were hit with stricter restrictions in August, to contain the outbreak there (the number of workers on large building sites was cut by 25 per cent at one stage, for example).
But even in the rest of Australia, where construction companies and contractors have more freedom, there are still restrictions on how many workers can be on-site to contain the spread of the virus.
This has caused productivity to drop to around 60 per cent in some cases, according to Turner and Townsend – a global consultancy business that interviewed key contractors in Australia.
“We are stuck in a position where we either put our workers at risk on-site or we risk being in breach of our contracts.”Survey response
Loss of jobs and income:
Master Builders Australia said there have been at least 82,000 job losses in the construction and building industry from 14 March 2020 to August 2020 (in its pre-budget submission).
This 6 per cent decline has occurred despite JobKeeper support payments going to nearly 350,000 workers (as well as grants for small to medium-sized businesses).
When businesses close, this often creates a shortage of work as the number of active projects declines. You only have to look at the 40% reduction of forward contracts across all sectors to see proof of this (estimated by Master Builders in their April survey).
And what about the implications for the Australian economy, as more people become unemployed and construction activity falls?
Before the pandemic, there were nearly 1.2 million workers in the building and construction industry – which also hosts the most apprentices and full-time workers of any sector. That’s 9 per cent of all working Australians!
Payment disputes worsen:
Anxiety around the anticipated shortage of work has led to more payment disputes – as contractors seek what they’re owed.
In NSW, for example, payment disputes almost doubled in the June quarter, as workers rushed to make claims on overdue payments.
Even at the best of times, the Australian construction industry has a poor track record when it comes to subcontractor payment rights (Queensland arguably offers the strongest protections to contractors).
Invoices are paid late too often – causing subcontractors to stress over when their next payment will come in.
Concern about future projects:
Many construction projects have entered a holding pattern, as a result of weaker business investment that goes hand in hand with the uncertainty of these times.
Although the residential market has the support of the HomeBuilders grant, others in the construction industry are hoping for stronger investment in commercial buildings and civil infrastructure too.
The Queensland government, for example, is investing billions of dollars into commercial construction (infrastructure), which is welcome news right now.
“Commercial builders and trade contractors are hanging on by their fingernails as building activity drops further each month and predictions become dire. At best, they have a pipeline of work that will just take them into 2021, so this announcement couldn’t have come at a more important time.”Paul Bidwell, Deputy CEO of Master Builders Association of Queensland.
“We’re also hoping that this is the first of many announcements relating to funding of government building projects.”
Delayed imports and higher costs:
There has been some disruption to the importation of building materials – due to factories shutting down in China (and other nations) earlier this year. Australia usually relies heavily on China in particular, so this set-back has caused supply issues.
Another side-effect of factories shutting down:
In many cases, the cost of imported materials has risen by 15 to 20 per cent for some goods, according to this report.
As you can see, there’s a lot to feel anxious about right now.
But is there anything that construction workers can feel positive about, in regards to the repercussions of COVID-19?
The good news about our current situation
Although it’s natural to feel worried about the negative impacts of COVID-19, it can be reassuring to focus on the positive developments too.
Let’s start with the obvious:
In Australia, construction is considered an essential service.
Although we must now follow certain regulations that may hinder productivity, we’re able to continue operating as long as social-distancing occurs (this is a lot easier to do on a construction site, compared to an office environment).
As a result, many construction businesses have been shielded from the worst direct impacts that have already hit other industries.
Here’s another silver lining:
The building and construction industry contributes more than $200 billion to the economy each year, which is nothing to sneeze at. Hopefully, this means that federal and state governments won’t shy away from investing heavily in construction going forward – to assist with the post-COVID recovery.
Many of us have already benefited from the first signs of this commitment.
The extension of JobKeeper should help many construction workers. Our industry has the most businesses registered for the scheme, according to Denita Wawn, CEO of Master Builders Australia.
“There’s no doubt that JobKeeper continues to be a lifeline for thousands of small builders and tradies as well as many in the building supply chain. The continuing easier accessibility for sole traders to access the scheme is also important.”
Additional support for Australian businesses:
Construction companies and sole traders can apply for grants and other forms of financial assistance here.
Government stimulus measures for construction projects:
The HomeBuilders Grant is helping the residential construction sector to mitigate the negative impact of the pandemic, as it subsidises home purchases or significant renovations.
As for commercial construction – earlier we mentioned the Queensland government is pumping billions of dollars into infrastructure.
We can only hope that other state bodies and the federal government will follow suit, but with strong support for public buildings too (as budgets usually favour civil projects).
As the deputy CEO of Master Builders Queensland said:
“Infrastructure spending is the engine of job creation, but for us to see the job creation quickly and flow on effects of this spending within the community, more of the budget should be spent on new public buildings rather than roads and rail.”
You can read the federal pre-budget submission by Master Builders for the October budget here.
Engineering construction is performing well:
The engineering sector is benefiting from significant levels of investment in transport and mining projects.
This activity is likely to shield the wider sector from the worst coronavirus blows, according to Adrian Hart, BIS Oxford Economics Associate Director of Construction and Infrastructure.
He told Quarry magazine:
“The engineering construction market is actually recovering at the moment after five or six years of decline following the resources investment bust.”
This could be an opportunity to strengthen our own supply businesses:
It’s risky to put all of our eggs in one basket – that’s one lesson that has come out of the supply chain restrictions in China and other countries. Perhaps it’s time to invest more heavily in local production.
There are many Australian-based companies that produce construction materials, and they’ve been experiencing higher demand since the virus outbreak.
What can we expect going forward (construction outlook 2020 and 2021)?
Unfortunately, the global construction industry outlook has now switched to negative, according to analysis by Moody’s Investor Service. For some background, this outlook has been positive since 2017.
On the positive side, there’s hope that global construction will recover faster than other industries.
Australia, in particular, will fare better than most developed countries…
According to Oxford Economics, the Australian construction sector is expected to contract by 10.4 per cent in 2020, but grow by 7.1 per cent in 2021. And this growth will probably be fuelled by a robust infrastructure pipeline, which will mean that Australia will keep its current market share of 1.9 per cent.
When it comes down to commercial construction activity, Master Builders Australia anticipates that levels will contract by 17.3 per cent in 2020-21.
As for the four years after that, activity levels are expected to remain below stable for both commercial and residential sectors.
In the worst-case scenario, the pandemic could cost our construction industry 464,300 jobs (according to their industry forecast).
However, the robust pipeline of engineering and infrastructure projects should be enough to make up for the shortfalls in non-residential and residential construction, further down the track. Adrian Hart from BIS Oxford Economics also predicts the residential market will actually lag behind the non-residential sector, when it comes to recovery.
Finally, there’s hope that our economic recovery will be faster than the Global Financial Crisis (GFC), as banks were in a far more precarious situation back then. If this happens, then wider stability would help to steer our industry back on track.