Rider Levett Bucknall research confirms that's 2009 was a tumultuous year for Australia construction.
Dr. Andrew Wilson, Senior Economist at Rider Levett Bucknall commented, "The Australian construction market felt the full effects of the Global Financial Crisis through 2009 with planned activity plummeting precipitously in all states."
"Faced with the prospect of significant labour-shedding with contractors struggling to replace existing workloads, governments initiated unprecedented spending programs designed to supplement construction market activity," he said.
For residential construction, the primary market support vehicle was the First Home Owners Grant. For non-residential construction, the Building the Education Revolution (BER) spending package, designed to upgrade schools, was implemented to fast track on-the-ground activity.
Although funding from these initiatives was distributed proportionately to all States, market activity levels have varied between States.
With the exception of Victoria, state capital city markets recorded significant declines in residential construction activity in 2009 despite the stimulus from the First Home Owners Scheme.
Dr. Wilson said, "According to the Australian Bureau of Statistics, Queensland, New South Wales, Western Australia and South Australia recorded reductions in the value of residential building approvals from January to October 2009 of 37%, 28% 23% and 14% respectively compared to the same period in 2008. In sharp contrast however, Victoria recorded a rise of 2% in activity over the same period compared to the previous year."
"The construction of private new houses was the mainstay of activity in the residential sector for 2009 compared to 2008 with stable outcomes in New South Wales, moderate growth in Western Australia and significant growth in Victoria. Queensland and South Australia activity levels declined, with Queensland down by 24%. The growth in this sector in most states was a direct result of the First Home Owners Grant."
Unit construction levels declined substantially in 2009 throughout Australia, particularly in Western Australia and Queensland. Again however Victorian was an exception to this outcome with strong growth of 31% in Unit construction during 2009 compared to 2008.
Victoria's planned residential construction output in 2009 relative to that of the other state markets has been exceptional in difficult economic circumstances with that state accounting for 34% of all private houses approved in Australia and 34% of all units. By contrast, Australia's most populous state New South Wales, has recorded only 15% of all private houses approved for construction in Australia during 2009.
Planned non-residential construction in Australia has been in virtual freefall through 2009 in all states as projects were cancelled or postponed, risk aversion pervaded the marketplace and development finance virtually evaporated. Despite the massive BER stimulus package introduced by the Commonwealth government, overall planned non-residential construction levels in Australia were down by 10% in 2009 compared to the same period in 2008.
Regardless of the effects of the various residential and non-residential stimulus packages in 2009, Rider Levett Bucknall found the prospects for the construction industry remain somewhat clouded for 2010.
Stephen Mee, Director of Rider Levett Bucknall Sydney commented, "We see the competitive tendering environment continuing in the first 6 months of 2010 and a positive contribution to Sydney's workload from larger education and health projects in the second half of 2010."
Early signs of a levelling off in new house construction are emerging with a moderation in finance commitments as the effect of the First Home Owners Grant wanes. Continued chronic undersupply of housing and population growth combined with economic recovery should however help to stimulate activity.
Mr Mee added," Recent supply-side initiatives by state governments in regard to land release, housing affordability and planning approval processes should also work to address pent-up demand. Strong demand for established houses particularly in Sydney and Melbourne will also assist the residential construction market. The impact going forward on affordability and sentiment of the recent interest rate rises may also be a factor in construction outcomes in 2010."
For non-residential construction, signs of a bottoming out in activity decline if not a nascent recovery in the office construction market are emerging in Victoria and perhaps in Queensland. General local and international economic recovery will stimulate activity as the property cycle moves into an upswing. The timelines involved in development and the continued reluctance of financiers may however retard a strong recovery in non-residential construction in 2010.