Master Builders regularly seeks input from our members to better understand their views on the economy, their business prospects and the conditions they face in the building and construction industry.

Residential building work in Victoria is strong, underpinned by continued low interest rates and a strong population growth. Whilst builders’ activity and expectations for their own business remains strong above the five year average and the neutral mark, their outlook for the industry is less buoyant, trending closely with the national index. Builders are facing delays in sourcing labour and materials and expect increasing costs from this. In particular, bricklayers, carpenters, foreman and site managers have become much more difficult to find over the last 12 months. Profitability in the industry still remains close to neutral, struggling to reach the heights of the past. Concern around the impact of IR in Victoria continues to grow, but has not reached the peak it did in 2013.

Industry expectations

Results of Master Builders’ last sentiment survey saw Victorian builders’ confidence in their industry’s future rise slightly, however in the March quarter it has dropped to the five year average.

Our Industry Expectations Index recorded 50.3 points for the March quarter, down from 52.7 points in the December quarter. This puts current levels slightly above the current national figure (49.2) and just on the neutral mark and five year average.

Confidence in the industry has most likely dropped as a result of political uncertainty due to Federal election speculation, the uncertainly of the Australian Building and Construction Commission (ABCC), and general uncertainty in the economy. The ambiguity around infrastructure investment continues to be a concern for our members, which impacts substantially on industry and business confidence.

As we get closer to the Victorian State Budget announcement, Master Builders is hopeful that much needed shovel ready infrastructure projects will be announced. We would welcome further funding announcements in the federal budget, the fact that this is a federal ‘election year’ budget may prompt big announcements.

Own business conditions

Builders’ expectations for their own business prospects remains consistently strong in Victoria, contrasting to the decline experienced at the national level.

Our Business Expectations Index has remained consistent for the last three quarters at 63.5 points, which contrasts to the national figure, which dropped from 62.8 to 57.4 in the March quarter. This puts Victoria well about the neutral mark, and above the five year average mark, which is where the national index is sitting.

While Victorian builders expect their own business activity and profits to slow over the next six months, the current levels of activity in Victoria are above the Australian index rating and most likely reflect the strong growth in the residential activity in the Victorian economy.

Sound job prospects

Builders are asked about their intentions regarding their likely levels of employees and subcontractors over the next six months, relative to now.

Our Employment Intentions Index has been steady over the last year, dropping only very slightly from 54.0 points in the December quarter to 53.7 points in March.

While the Victorian index is above the National figure 51.7, it is currently trending close to the national figure, and remains above the five year average of 46.8.

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

Profitability satisfactory

In the March quarter, the index measuring own business profitability dropped from 50.3 points in the December quarter (just above the neutral mark of 50) to below the neutral mark to 48.3. While this is below the five year average and the neutral mark, it is above the national figure, which dropped from 50.7 in the December quarter to 46.1.
This means that while business profitability is satisfactory in Victoria, the index has struggled to reach the much higher levels achieved in the past.

The Profit Expectations Index recorded 59.3 points for the March quarter, just above 59.1 points in the December quarter.
Our members are feeling slightly more confident about the profit expectations for their businesses, sitting above the five year average 56.8 points, and remaining above the national rating and strongly above the neutral mark of 50.
The current figure indicates that builders expect their business profits to improve over the next six months.

Our research indicates a slight decrease in the expected impact of wages on our members businesses. The Wage Costs Impact recorded 48.8 points for the March quarter, slightly down from 49.8 points in the December quarter, placing it just below the neutral mark.
This index is well above the five year average of 42.9 points, and also above the national index of 45.6 points.

Industrial relations constraints

Builders are asked to indicate the degree to which they perceive industrial relations is acting as a constraint on their business.
The index declined slightly in the December quarter to 40.0, down from 41.2 in the December quarter.
Victoria’s index rating is much higher than the national rating, and has consistently remained above the national rating, except for a spike in the national rating in the March quarter last year primarily due to major industrial relations difficulties experienced by builders in Queensland. The sentiment amongst Victorian builders that IR is having a worse impact has grown stronger over the last year, most likely due to the unresolved EBA agreement with the unions.
This means the Victoria’s currently has a greater level of concern with IR than the five year average.
The rise in the index experienced after the second half of 2012 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 building activity rises to accommodate Victorian population growth challenges, then availability of labour, and in particular finding subcontractors/employees has become an issue.
In particular, carpenters, bricklayers, foreman and site managers have become much more difficult to find over the last 12 months.
Builders must be able to fill the gap, and need to look to innovative work methods and materials use to overcome these shortages.
As the residential building cycle continues to mature, builders are more likely to experience further difficulty finding certain categories of subcontractors/employees. The industry is suffering underlying structural problems and skills shortages have the potential to be endemic, albeit masked at times according to the stage of the cycle.

Note: Respondents are asked about the degree of difficulty in finding a range of subcontractors/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.