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What’s Behind the Recent Downturn in Australia’s Construction Industry and When Will This Improve?

For many years, the Australian construction industry looked like the envy of the world. It was driven by the Aussie love affair with real estate, the strong annual growth in our national economy, and the blistering growth in a number of areas like Melbourne and South East Queensland. Since the growth had been so strong for so long, many were tempted to think it would continue far into the future.

Although history has taught us that’s usually not the case, the recent downturn we’ve seen in Aussie construction is still a bit of a head-scratcher given that the Aussie economy is so strong and dynamic relative to similar economies around the world. It’s a problem that’s arisen without a relatively simple cause, like what was seen in the U.S with the GFC when the housing bubble crashed. So what’s behind the recent downturn? And when will things improve?

The Causes

The first cause of the downturn in the Australian construction industry can be traced to international factors. Although Australia has continued to perform relatively well as an economy in recent years, there have been a number of huge global events — like the U.S.-China dispute on trade and the turmoil between Brexit and the EU — that have prompted many investors to keep their powder dry until they have a clearer picture of the long-term outcomes from these events.

Although these factors are international, their impact has indeed been local. As of June 2019, around 40,000 to 50,000 new apartments in Sydney have seen work delayed or outright stopped, an increase of 110 percent from the year before. Although many areas of the economy are impacted by such a slowdown, construction crews bare the biggest impact — with limited cement being poured, there’s limited new work on offer.

Beyond these slowdowns seen in the residential subdivision sector, the country currently has a number of large civil infrastructure projects officially approved, and many have gotten underway only to stall. The West Gate Tunnel Project in Melbourne is an example of this, as the involved parties have had a big stoush surrounding contaminated soil in recent weeks.

The issue is ongoing, and both sides of the dispute are intent on proving the other wrong. Whatever happens in future, it’s already had consequences: project works have been delayed, and workers have been laid off.

Major projects can be incredibly beneficial for the construction industry, but the downside is that if something goes wrong, it can result in a sudden and sharp hit to a lot of local businesses associated with such projects.

Building a Path Forward

Any fair review of these projects requires the recognition of their complexity. At the end of the day, a big project involving a ton of people means there’s a lot of variables involved in the execution of the project each and every day. Sure, there’s always a lot of commentary and criticism when a major project gets hit with a delay, but ultimately, it doesn’t take that much for something to go wrong. More importantly, just because something goes wrong doesn’t mean it won’t be resolved.

The construction of the Sydney Opera House may be the greatest example of this in Aussie building history. Its designer Jorn Utzon had a big fall out with the government at the time while the landmark was being built. But as anyone who has taken a ferry across the Harbour lately knows, all involved were ultimately able to overcome these hurdles and get the job done. For any Aussie working on a job site right now that’s suffering delays and other issues, this story is worth keeping in mind.

When Will Work Pick Up Again?

While the past 12 months have certainly been bumpy for the Aussie construction industry, the good news is that there are signs that the storm clouds are clearing. Although there’s still room for twists and turns, the international issues like the U.S.-China trade dispute and Brexit have progressed and begun to return these major economies to a more ‘normal’ existence.

Locally, we’re also seeing house prices pick up in a number of major markets. While the local economy now has to face down the fallout from the devastating bushfires and the expected losses in tourism as a result of the coronavirus’s impact, ultimately Aussie confidence in bricks and mortar as an investment is building again. Even if the next few months remain a bit bumpy, by 2021 we should see a strong foundation for ongoing growth firmly in place.

What are your thoughts on the recent downturn in Aussie construction? Let us know in the comments below.

Image: Pixabay

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