Economic data for the building and construction industry shows continuing strength in the residential sector and a welcome upturn in both non-residential building and engineering construction.

Engineering construction activity in 2014/15, however, is likely to be at its lowest point in six years.

Population

Economic growth is largely dependent on population growth, but with population growth come numerous challenges that both business and government must tackle.

Over the past two years there has been a steady decline in Australia’s population growth, due mainly to a significant decrease in the number of overseas migrants moving into the resource-rich states of Western Australia and Queensland. Both Victoria and New South Wales, however, have sustained quite large increases in their population. As the chart demonstrates, Victoria’s population increased by 101,500 in the year to December 2014. That was an increase of 1.8 per cent, much faster than the national growth rate of 1.4 per cent and faster than growth in any other state or territory.

Net overseas immigration was the largest contributor to Victoria’s population growth, with 56,000 net immigrants in the year to December 2014. During the same period 36,000 people were added through natural increase, and a further 9,000 from net interstate immigration.

Master Builders welcomes the continuing growth of Victoria’s population. However, it once again highlights the need for urgent investment in key social infrastructure across Victoria, such as rail, roads, hospitals, schools and community centres.

Employment 

The total number of people employed in Victoria increased by 0.5 per cent the June quarter of 2015, much more slowly than the 1.1 per cent increase across the rest of Australia.

The number of people in full-time employment – often seen as a more useful indicator of the potential number of those who might currently own or be seeking to own a home– rose by only 0.1 per cent in Australia and fell by 1.1 per cent in Victoria.

While full-time employment numbers have fallen sharply in several states, New South Wales and Queensland have recorded strong growth.

The strong performance of New South Wales likely reflects the job development resulting from their infrastructure program.

Consumer confidence

Key consumer confidence indicators have fallen in recent months.

Over the past two months the consumer confidence index has fallen by 10 per cent to 95.3, well below the ten year average.

The ‘time to buy a dwelling’ component of the index has fallen very sharply, and it is now at the lowest level since June 2010. The index fell by 15.4 per cent in July and was 14.7 per cent lower than a year ago. This fall reflects continued concerns about housing affordability across the nation, and in Victoria and New South Wales in particular.

Housing approvals 

Dwelling approvals fell in June, both nationally and in Victoria. In seasonally-adjusted terms, the total number of homes approved in Victoria fell by 24 per cent to 4,908.  Approvals of multi-units fell by 43 per cent to 2,195.

Approvals of houses, however, increased by 4 per cent to 2,713.  As a result, multi-units made up 45 per cent of total dwelling approvals compared with an unsustainable 60 per cent in May.

In the June quarter, total Australian home approvals fell by 4.4 per cent to a seasonally-adjusted 17,192, 17 per cent higher than a year earlier.

Victorian home approvals in June continued to exceed approvals in other states; but, at 4,908, they were only slightly ahead of the 4,840 approved in New South Wales.  In the year to June, at 67,289, they were ahead of the 57,509 approved in New South Wales and well ahead of Queensland’s 43,597.

The market nevertheless remains strong, with low interest rates and rising home prices encouraging investors.

Non-residential building

Approvals of non-residential work, have been volatile and remain weak.  Work approved in the June quarter of 2015 fell by 32 per cent to an annual rate of $6.6 billion.  However, non-residential work did increase by 12 per cent to a seasonally-adjusted annual rate of $10.2 billion in the March quarter of 2015, representing the biggest rise in three years.

Approvals of commercial buildings, mainly offices and shops, fell sharply and there was a continued fall in approvals of public sector work.  In the first half of 2015, public sector work made up only 15 per cent of total work approved, down from 24 per cent in calendar 2014.

Engineering construction

Work done on engineering construction in Victoria increased by 7 per cent in the March quarter of 2015.  At an annual rate of $9.8 billion, activity was 2 per cent lower than a year earlier.

Master Builders estimates that the volume of work done in 2014/15, in 2012/13 prices, was $9.5 billion, which is 5 per cent less than work done in the previous year.

Forward indicators of Victorian activity remain weak. Master Builders continues to advocate for the Victorian Government to identify infrastructure priorities for Victoria, and we have welcomed the introduction of legislation to establish Infrastructure Victoria.

The cancellation of the East West Link project took place as engineering construction work hit a five year low in Victoria.

However, with millions of dollars committed to infrastructure projects in the May Budget, we expect to see more work come on line in the near future.