Construction Industry Collapse: Sign Sector Is Heading for Bankruptcy

Throughout Australian history, the country’s economy has often been defined by booms and busts. From the depression of the 1890s, sparked by crashing wool and housing prices, to the current high price of thermal coal, the Australian economy has experienced cycles of boom and bust, followed by crashes.

In October 2019, reserve bank Warned of yet another boom, this time turning into a recession Construction sectorAt the time, RBA Vice President Guy Debelle delivered a speech warning of a decline in activity in the industry. It says it subtracts about 1 percentage point from GDP growth And that there was a risk that the decline could be even greater.

Around that time, investment bank UBS was similarly concerned, with job ads in the construction industry pointing out that the industry could lose about 100,000 jobs as activity levels have fallen from its peak. I warned you.

Every boom comes with a recession

Looking at the data, it’s clear why Debelle and the RBA were concerned. Industry directionFrom April 2012 to November 2017, the construction sector experienced a huge boom following a sharp decline in activity resulting from the termination of projects driven by the Rudd and Gillard government’s first homeowner grants. welcomed During this period, housing approvals rose 119% and the construction sector enjoyed a period of strong growth even as other parts of the economy struggled.

But its continued strength Construction sector It wasn’t.

Housing approvals fell 41.5% between November 2017 and the pre-pandemic low of January 2020. Unsurprisingly, housing starts have also declined from their peak, falling 31.8% between March 2018 and September 2019.

pandemic effect

At the beginning of 2020, the RBA’s concerns about the future of the construction sector seemed justified. But all that changed when the pandemic hit Australia’s shores just a few months later.

In just a few months, the fortunes of the construction sector have changed dramatically, with a pipeline of projects dwindling and turning to unprecedented levels of government support for the industry.

Effective June 4, 2020, the federal “HomeBuilder” program offered $25,000 in grants for eligible new construction and major home renovations of homes that meet government standards. According to the Federal Treasury as of March 2022, HomeBuilder had a total cost of $2.1 billion and more than 137,000 applications (113,113 for new construction and 24,642 for renovation).

The value of HomeBuilder-supported building work reached $41.6 billion, according to analysis by Master Builders Australia.

Various state and territory government subsidies for new homes have also helped push the number of new homes under construction to a record high.

Meanwhile, the demand for home renovations has surged as the way Australians live and work has changed dramatically in the wake of the pandemic. The Australian will spend $12.3 billion on home renovations in 2021, a 33% increase compared to 2020, according to ABS.

Amid all this stimulus and pandemic-driven activity, the construction sector has at times suffered from shortages of materials and labor to keep up with rising demand.

But now, with HomeBuilder and various state and territory subsidies in the rearview mirror, a worrying picture is slowly emerging.

About signs

Since peaking in March 2021, housing approvals are down 29% as of the latest data in June this year. After hitting a record high in June 2021, housing starts are declining in approvals, down 27.5% as of the March quarter.

Various forward-looking indicators for the industry show similar signs to those displayed in 2019, although a relatively strong pipeline of jobs remains and there is still significant demand across much of the industry. increase.

But unlike 2019, the broader economic picture is quite different, and the fortunes of the construction sector risk deteriorating more rapidly. With inflation likely to hit 7.75% by the end of the year, according to the Treasury, Australians may eventually become more reluctant to pull the trigger to take the plunge. brand new house.

In 2020, the construction sector was the latest example of ‘lucky country’ luck being rescued at just the right moment. But now, with a much different backdrop for economic conditions, sectors even bigger and activity levels even higher than previous peaks, the RBA and UBS could find it very difficult to pull down from there. I warn you.

Ultimately, it is still very early for the construction sector to finally slow down, despite worsening future indicators. Government stimulus and social housing construction may still fill the gap, but it remains to be seen whether the sector’s good luck will continue.

Tarric Brooker is a freelance journalist and social commentator. @AvidCommentator

Construction Industry Collapse: Sign Sector Is Heading for Bankruptcy

Source link Construction Industry Collapse: Sign Sector Is Heading for Bankruptcy

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