EDITORIAL | ECONOMY
BUILD IT AND THEY WILL COME
building and construction activity in
Australia. In the current edition of the
report, we find that the momentum lies
in public sector building and construction
activity given various governments’ programs
of investment in infrastructure. The upswing
in government investment began in 2016 and
appears likely to be surpassed with even
greater investment in 2017.
TIM REARDON
Principal Economist,
Housing Industry Association Economics
& Australian Construction Insights
A
ustralia’s economy is again shifting
gears. The once in a lifetime mining
‘boom and bust’ cycle has just about
run its course, while the record long and
strong new home building boom – which
incidentally was vital to the economy’s
continued expansion throughout the bust
phase of the mining boom – is now a year
into what we expect will be a three-year
contraction. Critically, it is now public sector
infrastructure investment where momentum
is gathering. The timing is serendipitous
given the state of play in both the mining and
new home building sectors.
Each of these cycles have distinct
geographical traits. The resource-rich
jurisdictions of Western Australia, the
Northern Territory and Queensland
experienced the highs and lows of the
mining boom and bust, while the new home
building boom has been a particularly
eastern seaboard phenomenon. The
public sector capital investment looks to
be more widespread, although again the
eastern seaboard states look to be the main
beneficiaries.
Naturally, these economic shifts are
reflected in the dynamics of the building
and construction sector. In fact, building
and construction is an instructive barometer
of the different sectors and geographies of
Australia’s economy. Increased building and
construction activity goes hand in glove with
expanding activity within the economy’s
different sectors and locations and vice
versa.
The ACI publication, Construction Monitor,
examines the sectors and locations of
20 Summer 2017
Government investment follows different
market signals to private sector investment
and therefore does not follow the population
growth. In fact, regions that have been doing
poorly, such as South Australia, have become
increasingly important politically and public
sector activity stands out as a potential
highlight.
Another wave of public investment will come
forward through the electricity generation
sector toward, and beyond, 2020.
Across the country, the report shows that
construction in New South Wales has
seen a boost in investment in transport
infrastructure making it the top ranked
jurisdiction for work on ‘roads, highways,
and subdivisions’ with $1.75 billion worth of
construction undertaken during the March
2017 quarter. This is 29.6 per cent more
than the state’s five-year average. This is
supplemented with strong activity in the
Australian Capital Territory where a new
metro system is creating significant activity.
Activity in Tasmania has also been relatively
strong with investment in new and upgraded
electricity generation and transmission
supplemented by strong levels of activity in
building of hotels and education buildings.
Activity in Queensland is solid with all
sectors performing well.
While the curtains have closed on the mining
boom, the ‘heavy industry’ category of
engineering construction was still a source
of strength for the Northern Territory.
Moreover, commercial building was another
source of growth for the Territory’s broader
construction sector – a surprising result
that seems to defy the wider context of the
end of the mining boom dampening overall
economic conditions.
The South Australian economy has endured
a run of underperformance and this is
evident in the construction rankings.
Western Australia’s ranking continues to
suffer from a high base effect, whereby the
high levels of building and construction
during the mining boom era has set a
very high benchmark from which we are
comparing current activity.
Another major factor impacting construction
activity is population growth and Australia’s
population hit a new all-time record of 24.5
million at the end of March this year. This
represents an acceleration in population
growth after it had started to flag in the
aftermath of the mining boom.
Net overseas migration has been the central
driver of population growth, with a net
231,900 additional residents being added
over the past year from this source – the
strongest inflow since early 2013.
The important aspect of this data for the
construction sector is that the population
shift follows the demand for employment.
Population growth also creates employment
and the cycle continues. A quick look at the
regional distribution of population growth
continues to reflect the respective economic
health of the states and territories.
Employment growth continues to be
strongest in Victoria and consequently it is
continuing to attract the bulk of migrants, as
well as an inflow of interstate migration with
a growth of 2.4 per cent. New South Wales
and Queensland have also experienced
growth (1.6 per cent), while population
growth in the re