How has the Australian housing construction industry been impacted by Covid-19?

4 reasons why the construction industry is experiencing a quick recovery from Coronavirus

The Covid-19 pandemic has wreaked havoc on the Australian economy and people’s health and livelihood.

Even though it’s sanctioned as an essential service, the housing construction industry hasn’t been immune to the impact of social distancing and lockdown measures governments have taken to mitigate the risks to public health.

For many glass-half-empty observers, the industry appears to be heading down a long and hard road of decline and destruction.  Concerns are being voiced around restricted workforces, limited productivity, disrupted supply chains, cash-flow in turmoil and a bleak forecast of future work pipeline.

What a crisis!

However, we believe the actual impacts are limited. The housing construction markets are showing an incredible level of resistance and are likely to bounce back strongly in the next few years.

Here are 4 reasons why the construction industry is experiencing a quick recovery from Coronavirus:

1. Tight, but near-seamless, supply chain

According to Morgan Stanley Research, the immediate fear about a disrupted supply chain, primarily with long-lead time items from China, was short lived (ACIF, May 2020).  Chinese ports were quickly re-opened, and shipments soon began arriving again – just as inventories are being restocked. This has allowed a near-seamless, albeit very tight, restocking process.

Boral, one of Australia’s largest construction material suppliers, confirmed they had enough back-ups and alternative locations for customer supply already built into their network. They have also been working to ensure they have adequate stocks of supply of all critical additives and inputs that are imported (Boral, May 2020).

1.  2. Improved construction productivity

   When Covid-19 hit, unions, construction industry bodies, and governments at all levels immediately joined hands in an unprecedented collaborative fashion. They quickly came up with appropriate measures to ensure activities on construction sites were minimally impacted, albeit with some social-distancing driven changes.Contradictory to a common belief, productivity increased.

   Sites have introduced more shifts or were allowed to stay open 24/7 – a feast rarely given by the authorities to building contractors prior to Covid-19.

   Restrictions permitted only one trade to access the site at a time, meaning trades are now completing jobs in one go. In the past, they would reach a level of partial completion and return at a later date – a perpetual bugbear of every project manager. The embracement of innovative uses of technology, like mass communications meetings and critical messages via digital platforms, has further boosted productivity and efficiency.

1. 3. Timely government stimulus measures boosted cashflows

   Both Federal and State Governments are to be applauded for the financial and regulatory measures put into place to support the economy.

   The construction industry has been particularly supported via:

   • Stimulus packages
   • Marketing grants
   • JobKeeper provisions
   • Tenant landlord codes and eviction legalisation
   • Fast-tracking development application approvals of major projects, and
   • The upcoming HomeBuilder program offering a grant of $25,000 to build a new home or substantially renovate an existing home

3. All of the above help shield the housing construction industry from the Coronavirus-induced economic slowdown. There’s no doubt these radical measures help maintain construction cashflows and keep the industry going.

4. Projected increase of residential building activity

Now that we have a grasp on the near-term construction impacts, can the pipeline of future work be as resilient?

A key fact in this observation is that residential building was mid-way through a deep correction before the pandemic arrived.

Commsec senior economist, Ryan Felsman, said before the virus construction activity was weakening for two years, particularly in NSW, due to the slowdown in residential home building, moderation in non-mining infrastructure commencements, lower population growth, and bushfire disruptions. Markets are still absorbing new dwellings that were started in the housing boom in 2016 (The Urban Developer, May 2020)

Nevertheless, the Head of Industrials Equity Research at Morgan Stanley, Andrew Scott, said there were positive anecdotes about the pace at which the pipeline can be refilled (ACIF, May 2020).

For example, Stockland, announced residential enquiries in the last week of April were in line with pre-Covid levels with sales offices having reopened in WA, NSW and QLD. They also noted April default rates at 4% were only marginally above long-run levels. 

Statistically, while the Australian Bureau of Statistics (ABS) shows a continual downward trend of residential building activity from its peak in 2016 until 2021, it forecasts an increase in the next four years, up to $13 billion by 2024.  The main drive for such an improvement is the expansion of the supply of social and affordable housing funded either whole or in part through assistance from Commonwealth and State Governments (ACIF, May 2020). 

In summary, the housing construction industry is currently faring much better than many others in the Australian economy.

There is an increased confidence that we could see a relatively seamless transition and avoid a late 2020/early 2021 crash in activity. We can even expect a strong recovery in the subsequent few years.

Should this occur, it would be a strong testament to the extraordinary resilience of the industry throughout this pandemic time.

REFERENCES

Australian Construction Industry Forum (ACIF), April Update Report 2020.

Australian Construction Industry Forum (ACIF), May Update Report 2020.

The Urban Developer, Residential Construction Falls to 19 Year Lows, viewed 27 May 2020, <https://theurbandeveloper.com/articles/biggest-annual-fall-in-residential-construction-in-19-years-abs>

Boral, Covid19 Updates, viewed 1 June 2020, <https://www.boral.com/covid19-updates>

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