We seek your regular input to better understand your views on the economy, business prospects and the conditions you face in the building and construction industry.

As the population continues to grow and interest rates remain low, residential and commercial building remains strong in Victoria. Reported business conditions are at their highest since December 2010, and, while the reported industry outlook is slightly weaker, Victoria remains consistently above the national figures on all counts except for industrial relations and profit expectations, which continue to cause concern for the local industry. Builders report ongoing labour source delays and expect subsequent increased costs. In particular, bricklayers, carpenters, project managers and site managers have been difficult to find over the past 12 months. Profitability in the industry remains closer to neutral, struggling to reach the heights of the past, with profit expectations sitting around the five year average.
Industry expectations

Master Builders’ most recent sentiment survey reveals a decline in Victorian builders’ confidence in their industry’s future, sitting just above the national mark and the five-year average mark.

Our Industry Expectations Index recorded 50.7 points for the December quarter, a decline from  52.9  in September. This puts current levels below the national figure (53.3), just above the neutral mark of 50, and the five-year average (50.2).

Victorian commercial builders may have been slightly more pessimistic in their outlook due to domestic events, including concerns about the passage of the Australian Building and Construction Commission (ABCC) federal legislation, its implications on work, and continuing EBA negotiations. International events could also have affected the decline in industry expectation, including the election of Donald Trump as President of the United States.

We hope that confidence will stabilise and potentially improve now that the amendments to the ABCC legislation have passed. However, the record number of independents in the Senate and their potential for slowing down the legislation process are a concern for businesses.

Own business conditions

Current business conditions for builders in Victoria continued to improve, up from 65.4 in the September quarter to 67.4 points. This is a seven-year high, in stark contrast to the national figure, which is virtually unchanged from March, placing Victoria well above the neutral mark (50), the five-year average mark (57.8) and the national figure (62.7). It reflects the strong growth in Victorian residential activity.

Builders’ expectations for their own business prospects remain consistently strong in Victoria, sitting well above the national level. Our Business Expectations Index has remained consistent for the past year, decreasing slightly in the December quarter to 63.6 points from 65.4 in the September quarter. This places Victoria well above the neutral mark (50), the five-year average mark (56.6) and the national figure (59.7).

Stable job prospects

Builders were asked about their intentions regarding likely levels of employees and subcontractors over the next six months.

Our Employment Intentions Index has been consistent over the past year, increasing slightly from 54.7 points in the September quarter to 55.5 points in December.

The Victorian index has been trending higher than the national figure, and it currently sits just above the national figure (54.2), remaining above the five-year average of 48.58.

As the index is above 50, this indicates that builders are likely to lift their employment levels over the period ahead.

Profitability satisfactory

The index measuring profitability improved from the September quarter from 47.8 to 52.1. This puts Victoria just above the national figure (50.8) but well above the five-year average of 47.7. This means that while the index has been  volatile over the 12 months to December, business profitability is satisfactory in Victoria, and improving.

While there was a dip in the Profit Expectations Index in September, there was a recovery in December which recorded 55.5 points– more optimistic than the September quarter’s record of 53.8 points. This indicates that our members are slightly more confident about the profit expectations for their business than they were a year ago, sitting just below the national figure (57.7) but remaining strongly above the neutral mark of 50. This suggests that Victorian builders expect their business profits to improve over the next six months.

Our research indicates a slight improvement in the expected impact of wages on the industry. The Wage Costs Impact recorded 48 points for the December quarter, a decline from a peak of 51.9 points in the September quarter, placing it just below the neutral mark.

This index is well above the five-year average of 44.8 points, and also above the national index of 45.5 points.

Industrial relations constraints

Builders were asked to indicate the perceived impact industrial relations has on their business.

Industrial relations has consistently been an issue for Victorian businesses, and the most recent report demonstrates a slight improvement in concern with the matter, with the index decreasing in the December quarter to 40 points, a decline from 42.6 points in the September quarter.

Sitting just above the five year average (39.5), this indicates there is still considerable uncertainty among Victorian builders . The high level is likely due to the uncertainty about the industry EBA which expired in March 2015, and outcomes from the passage of the ABCC bill.

Victoria’s index rating about the impact of industrial relations  is much higher than the national rating (35.4), and has consistently remained above the national rating, the exception being a spike in the national rating in the March quarter 2015 primarily due to major industrial relations difficulties experienced by builders in Queensland.

While the concern with industrial relations seems to be trending high, it has not reached the level of concern recorded after the second half of 2012, which was primarily due to major industrial relations disputes including the Grocon blockade in Melbourne and the Children’s Hospital project in Brisbane.

Labour shortages

As residential and commercial building activity increases to accommodate the growing Victorian population, the availability of labour continues to be an issue.

Respondents were asked to indicate how difficult it is to find a range of subcontractors and employees. A high index reading indicates large to critical difficulty in finding employees or subcontractors. A low index reading indicates builders are experiencing slight or no difficulty in finding subcontractors/employees.

In particular, carpenters, bricklayers, project managers,  site managers and tilers have become difficult to find over the past 12 months. This reflects an underlying structural problem in the industry where skills shortages have the potential to be endemic, albeit masked at times, according to the stage of the cycle.

There is concern that as the residential building cycle continues to mature, builders may be more likely to experience difficulty finding certain categories of subcontractors and employees. Master Builders is aware of these challenges and continues to raise it in discussions with the government.