Construction outlook 2022 (Australia)

As Australia reopens its borders to international tourists for the first time in nearly two years, there’s hope we’ve finally got a handle on COVID-19.

It’s been a stressful period for people from all walks of life, and the building industry hasn’t been immune from the challenges.

But mercifully, it looks as though some sense of normalcy is returning, as many restrictions ease.

Let’s reflect on what the Australian construction industry can expect for 2022 and beyond (we’re focusing on commercial infrastructure and property sectors). 

Contents

2022 gets underway

To begin, it appears we’re off to a marginally slower-than-expected start thanks to the COVID restrictions of 2021. A 2.2 per cent expansion is now expected, instead of the previous growth forecast of 2.3 per cent put forward by a leading research firm.

Thankfully the construction sector is the backbone of the economy, bringing in $3 for every dollar spent on projects. The federal government alone is pouring $110 billion into the 10-year infrastructure pipeline, on top of significant allocations from several state governments.

In particular, road and rail projects will benefit from a record investment of $36 billion from 2022 to 2024. 

This should significantly support industry output, as long as the pandemic remains relatively under control on a national and global scale.

On the downside, the strong influx of projects puts a heavy strain on an industry that’s resources were overstretched before the pandemic hit. Unfortunately, material and staffing shortages are far worse now.

Let’s look at some of the challenges and opportunities for 2022.

Challenges for the Australian construction sector

Significant project delays:

Production delays and costly project overruns were a problem before the pandemic began, for both residential and non-residential construction. 

The median delay for major projects used to be more than 100 days, but that timeframe has now doubled to more than 200 days. In the worst cases, one in ten projects are delayed by more than 12 months – according to analysis by construction software provider nPlan.

“Because this issue was not dealt with before the pandemic, we are now in a situation where projects have suddenly become much riskier. This will pile pressure on contractors and may mean clients bring forward fewer projects”. Dev Amratia, CEO of nPlan

The delays are driven by skilled labour and material shortages – pre-existing challenges that have been exacerbated by local, national and global COVID-19 restrictions.

Material shortages and price hikes:

It’s not uncommon for builders to have multiple projects running at the same time, as deadlines can’t be finished due to severe supply shortages. 

Lockdowns all around the world have stalled the production and transportation of vital building materials such as timber, bricks, cement, steel, paints, electrical components and roofing supplies.

This has a domino effect on the entire supply chain. There aren’t enough materials to meet the influx of new home and infrastructure projects (demand for these projects is largely driven by government infrastructure spending and popular home subsidies). 

As such, prices have risen by more than a quarter for supplies like timber, bricks and tiles. But that’s not as bad as costs for structural bearers and joists, which grew by a whopping 60 per cent when Master Builders surveyed its members in September 2021

These price hikes are being passed onto clients too. New home build costs soared by 20 per cent in Queensland over the span of 12 months, for example. 

Consultancy group Rider Levett Bucknall actually predicted the Sunshine State will be hit with some of the steepest construction costs in 2022, even though Queensland lockdowns haven’t been as strict as other states like NSW and Victoria. No Australian state or territory is shielded from price inflation, as our industry is so reliant on the global supply chain.

As restrictions ease around the world, many countries have the same idea as Australia – they’re spending big on infrastructure too. This adds to global competition for resources, which may mean that supply shortages and price hikes will continue well into 2022 (and possibly beyond).

Paul Bidwell, Master Builders Deputy CEO, expects this will be the case. He says opening the borders may ease some of the pressure, but won’t solve material shortages.

“There’s no doubt builders big and small continue to struggle with the fallout from the ‘perfect storm’ – the boom in demand off the back of HomeBuilder and the Regional Home Building boost grant, combined with low-interest rates and record interstate migration,” Mr Bidwell said.

“There are a lot of very frustrated builders and clients out there – mostly in the housing sector, but the commercial sector is not immune.”

Speaking of the commercial sector, demand is expected to temporarily slow for multi-residential spaces:

Companies around Australia have adopted flexible working arrangements during the pandemic. 

In 2022, we could see lower demand for offices, accommodation and retail spaces – as people change the way they work and socialise for now. However, many commercial construction companies will have their hands full with economic and social infrastructure projects for federal and state governments (this should keep them busy).

Let’s talk about labour shortages….

Many building projects are delayed because COVID disruptions have made it even harder for companies to find skilled workers to handle the influx of projects.

Normally, overseas workers help to fill this employment gap, but not while Australia’s borders were closed for nearly two years. On the bright side, there’s hope that staffing shortages will soon be filled, as national borders open again.

And this couldn’t come at a better time:

Skills shortages span the entire construction industry, from senior development managers and planners to interior designers, tradespeople and engineers. Right now, companies are having the hardest time finding bricklayers, roof installers and carpenters. 

“I’ll be honest with clients. I tell them, yes, I’ll build you a house that’s going to cost you on a certain level… [but] by the time you get to the end, you might be $70,000 out of pocket.” Rockhampton builder Sonny-Jim Fulton tells the ABC

Opportunities for the Australian construction sector

It’s a good time to look for employment in the building industry…

Many companies are willing to pay higher wages, in a bid to attract and retain tradespeople and construction professionals in this highly competitive market. Candidates should polish their resume, update social media profiles and be ready to act fast when presented with potential job opportunities.

Pay increases are particularly higher than usual in the property sector, according to remuneration specialists Avdiev (though not for the minority of property companies that still have frozen or cut wages).

Global contractors have a reason to do business with Aussie companies again:

Despite the challenges, the Australian construction industry can look forward to an annual 3.4 per cent growth between 2022 and 2025. This is largely thanks to a strong pipeline of massive infrastructure projects. Now that borders are open, such projects are likely to attract contractors from around the world – particularly in countries like Spain, Korea, Italy and Malaysia.

The construction industry is very resilient: 

Although it’s hard to ignore the challenges of staffing shortages, this could be alleviated somewhat in 2022. 

The number of people employed in construction is expected to grow by 5.2 per cent this year, which gives us 55,000 more tradies and building professionals. Even if this doesn’t completely fill the gap, it would still make a positive difference to project outcomes for many companies.

It’s also interesting to note that some construction companies are actually performing better than before the pandemic hit (especially in states that didn’t have long lockdowns). In the property sector, this applies to 29 per cent of Western Australian companies and 24 per cent of Queensland companies that participated in the Avdiev survey.

The vast majority of NSW, Victorian and WA respondents also said they’re performing “well” in the survey.

“The property industry is well known for surviving peaks and troughs, which perhaps put it in good stead for dealing with the pandemic.” Debra Moloney, principal at Avdiev Report

If you need support:

Many construction workers feel stressed and overwhelmed after facing nearly two years of uncertainty. It’s been a tough time for Australians in general, but mental health problems are particularly prevalent in the building sector because people are reluctant to seek help. 

If you’re struggling, please talk with someone you trust or get support from a professional.

Lifeline: 13 11 14

Mates in Construction: 1300 642 111

Suicide Call Back Service 1300 659 467 

Healthdirect 1800 022 222 

February 28, 2022 blog, Blog classic tpmbuilders_admin