AUSTRALIA’S economy relies on things being built. But a huge drop in approvals and further falls on the way are bad news for more than just tradies building houses and apartments.
AMP Capital’s Shane Oliver told news.com.au there was typically a lag time of six months between approval and construction, meaning the impact of the slowdown will start being felt soon.
Australian Bureau of Statistics figures show Australia’s July building approvals figures are down -5.6 per cent in seasonally adjusted figures, with apartments the worst hit, down -6.2 per cent.
Mr Oliver said the worst is yet to come for Australia’s tradies, in a view supported by BIS Economics’s Angie Zigomanis.
“The fact that approvals are going down again points to a downswing at the end of the year going into next year,” Mr Oliver said.
Mr Zigomanis went further, predicting the decline would continue “at least another 12 months or possibly two years.”
Building approvals are important as they point to what comes next in the construction cycle.
In recent years building approvals have steadily risen as the east coast housing boom went into full swing. Levels grew to almost 30 per cent higher than the long term average, and the national residential crane count — 528 cranes — is significantly greater than the USA (300) and Canada (123) combined.
That’s despite Australia’s entire population being only 6 per cent of the combined populations of the United States and Canada.
The declines in building approvals aren’t just limited to apartments. The number of house approvals has also fallen, and despite the uptick in renovations, it’s not enough to stem the tide.
So as those numbers fall, there will be less work available for Australia’s legion of tradies and builders.
That’s despite record government infrastructure spending on projects such as NSW’s WestConnex and Victoria’s Metro and North East link.
Mr Oliver said the problem was many of the people working in residential construction simply don’t have the skills to easily transfer to a roads or rail project.
“Many electrical workers or plumbers won’t transition,” he said.
(But) “If you’re a concrete worker or an engineer, then those skills are used in infrastructure.”
RESIDENTIAL CONSTRUCTION HUGELY IMPORTANT TO ECONOMY
At last count construction accounted for 1.19 million, or almost 9.5 per cent, of all jobs in Australia. That’s not to mention the additional 228,000 who work in rental, hiring and real estate. That makes construction the third largest employment sector behind retail and healthcare.
A lot of people have gone into construction over the last decade, as the good times keep getting better.
Some of these people have never experienced a decline. But the drop in building approvals will soon mean there’s less work for nearly 10 per cent of our entire work force.
“There could be a few tradies around twiddling their thumbs for a while,” Mr Oliver said, although he pointed out that the impact may not be felt immediately as there was “a lot of work on the books to complete” which may “might tide them over for a while.”
Mr Zigomanis seconded this, saying the impact of the fall off would be felt over a long period of time as it rippled throughout different areas of construction.
“If you’re in the kitchen industry, it might be a couple of years before you come in and start fitting out (buildings that are just being started now)” he said.
“At least you can plan for it.”
He said that many industries would feel the pinch more immediately. For example there’ll be a sharp drop in demand for new lifts, and there won’t be the need for so many painters.
Mr Zigomanis agreed with Mr Oliver that some sectors will feel the pinch much more than others.
“If you’re in certain segments you might find there’s jobs in (major) infrastructure,” he said.
“If you’re in concrete, maybe you can move across to a road project or a rail project.”
But as has already been shown, a slowdown in construction can have grave consequences for retail sales as less new apartments need less new fridges, washing machines, and beds.
The slowdown is also likely to be felt throughout the backstreets of Australia, as the smoko coffee and lunch time demand slackens.
Mr Oliver warns that a slowdown in construction could drag economic growth in Australia below the RBA’s expected rate of 3-3.5 per cent down towards 2.5-3 per cent.
FALLING JOB ADS IN CONSTRUCTION SIGN OF THE TIMES
And in what could be seen as a sign of the times, job ads for construction and real estate/property are all down from last year, almost in line with the concurrent falls in building approvals.
This reflects a growing trend that’s been seen in Seek ads since June earlier this year.
When a bust came to West Australia, as the mining boom petered out, bankruptcies skyrocketed and many people moved east to work in the booming construction sector.
To see how bad it got in WA, house prices in Perth are only now back to where they were 10 years ago.
Baldivis, 46km south of Perth, has just been named bankruptcy capital of Australia.
Take a look on Gumtree and there are plenty of houses for sale and rent, and jet skis and cars that need to sell now.
What’s different now is that there is no construction boom to pick up the pieces of another bust.
Seemingly someone in the know is aware that this is coming, so it might be time for Australia’s tradies to sit up and take notice.
David Ross is a freelance journalist. Follow him on Twitter @FakeDavidRoss
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