Construction outlook for commercial and residential projects (2023 and beyond)

The Australian construction industry faces a number of short-term challenges amid rising interest rates and inflation.

Despite these setbacks, the latest forecasts by Master Builders Australia predict that overall construction activity is still expected to expand modestly over the coming years.

However, a decline is expected for residential construction (particularly medium-high density projects).

Every year around 200,000 new homes need to be built in order to cater to long-term population growth, but it’s likely that builders won’t meet this target until 2026.

“While pandemic conditions brought forward some residential building demand, the current economic conditions of interest rates hikes, inflation increases, and continued shortage of workers and materials, are significantly contributing to the decline”, according to Master Builders Australia Chief Executive, Denita Wawn.

“Our members continue to be frustrated with lengthy delays in approvals for land title, building applications, and occupation certificates. Shortage of land in the right places, high developer charges, and inflexible planning laws also restrict opportunities to meet the housing needs of our future. These long-term supply challenges are the responsibility of State and Territory Governments”.

Master Builders Australia welcomes the federal government’s decision to set up the Housing Supply and Affordability Council, alongside state and territory governments. 

The Council aims to increase housing supply by bringing together a transparent panel of experts to advise the government. There’s hope this move will help to bring stability to the residential construction sector.


What about the construction outlook for non-residential building projects?

The outlook for non-residential and commercial construction is more optimistic. A small decline in activity is expected in 2023, but there should be steady growth from 2024 to 2026.

Civil and engineering construction should emerge as the biggest winner, despite a small decline predicted for 2023.

Having said this, Master Builders Australia is concerned that changes to the industrial relations framework for non-residential activity will slow down growth.

“Master Builders remains concerned about the potential impact of unfavourable changes to the industrial relations framework for non-residential activity. Changes already made and intended are likely to mean higher costs and lengthier rollout times. Were it not for these changes, the forecast growth rates would be more substantial”. Denita Wawn, Master Builders Australia

Let’s take a closer look at the glowing construction outlook for railway…

A recent report suggests we can expect a continuous boom in railway construction and maintenance projects around Australia.

Released in December 2022, the Australian Rail Outlook Report predicts the value of work on building new railways will peak at $13.2 billion in 2023-24.

This is $2.5 billion more than the current record-breaking figure.

If you factor maintenance work into the equation, we’re looking at $15.4 billion for 2023-24.

This surge in activity is largely driven by massive projects in the public sector, particularly related to passenger rail in the big cities.

The east coast stands to benefit the most from this investment, as 77 per cent of major project work is planned for Queensland, NSW and Victoria.

Examples of significant 2023-24 projects include Sydney Metro, Melbourne Airport Rail Link and the Cross River Rail. There will also be the Inland Rail network, which will sprawl across Victoria, New South Wales and Queensland.

There’s a notable mention for Western Australia, which will benefit from the state government’s METRONET program over the next two years. This is the largest public transport investment project in Perth, covering 72 kilometres of new passenger rail. 

And we shouldn’t forget the Canberra Light Rail project in the Australian Capital Territory. There will be 12 new stops along this train line, which will be 11 kilometres long. 

What’s the rail construction outlook beyond 2023-24?

Activity should slow down (but remain healthy) as many of the major projects move closer toward completion. 

BIS Oxford Economics predicts that $129 billion worth of rail construction and maintenance work will be completed in the ten years leading up to 2032. This is $33 billion more than the work completed in the previous decade. 

Strong population growth is the main driving force behind this expected activity. Another motivation is sustainability – as federal, state and territory governments embrace more eco-friendly means of transportation.

Caroline Wilkie, CEO of the Australasian Railway Association, says these projects will do more than meet Australia’s transport needs. 

“Longer term, these projects will support our rising population and help achieve the country’s net-zero targets, by taking more cars and trucks off the road and encouraging greater use of sustainable transport options.”

“This strong focus on new projects recognises the value of rail to our economy and community and addresses decades of historic underinvestment when compared to other transport modes.”

15/12/2022 blog, Blog classic Todd Mason