Booms and busts in investment cycles – across mining, economic and social infrastructure, and housing – have had a profound impact on Queensland’s construction industry.
Since the mid-2000s, measured construction activity in Queensland has been dominated by the tremendous cycle in resources investment, primarily coal and LNG related projects. Construction activity tripled between 2002 and 2014 before collapsing 40% in subsequent years.
The volatility in work, high competition for resources, and sharp variations in costs and prices continue to challenge the sustainability of the construction industry in Queensland. While total construction activity in Queensland is likely to stabilise around current levels for the next few years, this masks wide variations by construction segment – across housing, non-residential building and engineering construction – as well as within the engineering construction segment itself. Construction costs, which had flatlined in the wake of the investment bust – are growing at the fastest pace for several years, with sustained, high levels of construction activity in New South Wales and Victoria likely to continue to provide resourcing challenges for Queensland projects.
Has risen a modest 6.7% over the past two years, following a 40% collapse over 2014/15 and 2015/16.
Much of the boom and bust in construction activity in Queensland was driven by the engineering construction segment (including Major Projects).
From a peak of $65.3bn in 2013/14, annual construction work done (encompassing residential building, non-residential building and engineering construction) now sits at just over $42bn.
Total engineering construction work done fell from an official peak of $47bn in 2013/14 to $18.6bn in 2015/16, but has risen marginally to $21.4bn in 2017/18 on the back of roads, electricity, telecommunications (NBN) and mining projects.
CONSTRUCTION EMPLOYMENT WAGES AND PRODUCTIVITY
Employment growth was strong during the first phase of the resources boom, but did not rise significantly again post GFC during the more LNG-intensive boom phase.
There has been a solid construction employment recovery through 2017/18, although the modest outlook for construction work from here remains a key risk.
The boom in construction activity in Queensland over the past decade produced large increases in construction costs.
Overall construction costs have not fallen substantially since the boom and are again rising strongly, placing pressure on industry margins.
KEY IMPLICATIONS – FURTHER ANALYSIS
Strong government revenues from the boom and surging population growth drove a twin cycle in public investment, particularly where infrastructure gaps become apparent in transport (roads and ports particularly, but also rail), utilities and social and institutional nonresidential building (education and health). While public investment was sustained early on in the subsequent resources investment bust, sharply falling revenues eventually drove a retreat in public investment – amplifying the effect of the downturn in private investment on the Queensland economy.
Total construction activity (including residential building, non-residential building and engineering construction) peaked at $65.3bn in work done through 2013/14, almost 140% higher than 2004/05 levels.
Over 2014/15 and 2015/16, however, the value of total construction work done fell by 40% as several multi-billion dollar LNG projects reached or neared completion and investment in coal projects continued to decline sharply.
Over the past two years, total construction activity has more or less stabilised in Queensland, with work done settling at just over $40bn. However, cycles continue to play out under this steady exterior, with residential building activity falling 6.4% in 2017/18, offset by a pickup in non-residential building and engineering construction work.
Over the next two years, total construction activity in Queensland is forecast to edge lower, with weaker residential and engineering construction activity offsetting modest growth in non-residential building.
Since the end of the resources boom, Queensland’s construction market has been overtaken by both New South Wales and Victoria, with activity in those states supported by a strong turnaround in economic and population growth driving surging social and economic infrastructure construction. In turn, skills and other construction resources such as plant and equipment have moved from the former resource boom states into the new growth states. While New South Wales and Victoria are near the peak of their current construction cycle, construction activity is still expected to remain at very high levels, presenting capacity and capability challenges if Queensland is to sustainably grow its own construction market.
QUEENSLAND CONSTRUCTION ACTIVITY HAS RISEN A MODEST 6.7% OVER THE PAST TWO YEARS, FOLLOWING A 40% COLLAPSE OVER 2014/15 AND 2015/16
LOGAN ENHANCEMENT PROJECT
NEW OPPORTUNITIES MAY EMERGE WITH THE COMMONWEALTH GOVERNMENT’S INFRASTRUCTURE INVESTMENT PROGRAM (IIP)
ENGINEERING CONSTRUCTION ACTIVITY IS EXPECTED TO EASE AS MAJOR ROADS PROJECTS MOVE TO COMPLETION
With construction activity falling sharply in Queensland (and also declining at the national level) from 2014/15, growth in engineering construction prices slowed sharply, as captured by both the RBI and the engineering construction IPD. Construction prices actually declined between 2014/5 and 2015/16 according to the RBI and fell close to zero for the engineering construction IPD during 2016/17. While falling construction activity certainly played a part in slowing down the growth in construction costs – particularly through its impact on slowing growth in construction wages and the pricing of local equipment and materials – it was also likely influenced by international factors.
In particular, slowing global demand for commodities coupled with rapid increases in supply courtesy of the resources investment boom in Australia and elsewhere resulted in a commodities glut and substantial falls in prices for those commodities used in the construction process (particularly for oil and related products – such as bitumen and fuel – as well as steel).
By contrast, over the past year, construction costs have re-accelerated sharply, with readings for both the RBI and engineering construction IPD surging back to resourceboom highs close to 4% in moving annual average growth terms.
While this has been largely due to sharply higher oil prices (feeding through to diesel fuel for construction plant and vehicles, as well as bitumen prices), other industry costs are also starting to reaccelerate, albeit from a weak base. Given the number of construction projects already in flight at contracted prices, the prospect of persistent, higher growth in construction costs is likely to presents risks and challenges to industry sustainability and the financial health of contractors and projects.