As the virus freeze begins to thaw, ‘Winter is Coming’ for construction

After weathering the coronavirus storm relatively well, avoiding the most severe industry restrictions, the short-term future of construction is starting to look bleak. Following a 5.3% fall in construction industry jobs over 6 weeks (ABS), the Master Builders Association has released a survey of members indicating almost three quarters report a fall of 40% of forward orders on the books.

Even before the pandemic, the industry was facing a collapsing pipeline of works in multi-dwelling developments as a combination of oversupply and falling foreign investment pummeled sales and the financial viability of major developments. A solid pathway of infrastructure projects combined with an improving office development environment had offered hope for the industry. Under the ‘new-normal’, significant questions are hanging in the air around the medium term future or major projects planned for retail, commercial, tourism and logistics (i.e. air-travel).

With both State and Federal budgets in tatters, some commentators are now beginning to question the commitment to headline infrastructure projects in favour of smaller ‘shovel-ready’ works to support jobs and the economy. Key in their cross-hairs are the as-yet not started North-East Link in Melbourne and the construction timeline of Badgery’s Creek airport (Western Sydney). Most of these voices are not advocating the abandonment or cancellation of works but an extension of their delivery schedules to reallocate funds to other more manageable works. In the short-term some of this reasoning may seem sound – with air travel grounded for the foreseeable future and a potential cultural shift towards telecommuting, how well do the original business cases for these projects still stack-up?

The good news is that for every nay-sayer, there is an optimist. Dire predictions of a housing price crash of 30-40% are nothing new, we’ve been hearing that for the past 5 years and it is yet to eventuate. Infrastructure works will, by-and-large, proceed even if they are modified slightly in their delivery timelines and/or scope. Whilst the oil & gas industry does face significant headwinds on the back of historic low commodity prices, Iron Ore and other base minerals are faring remarkably well throughout the pandemic. With over 10% of the workforce employed in construction (approx. 9.1% directly), the industry is rightly at the forefront of stimulus plans to jump-start the economy.

Read the full MBA media release here.