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.

As the population continues to grow and interest rates remain low, residential and commercial building remains strong in Victoria. Builders own views about their current business conditions are at their highest since December 2010, and, while their reported future outlook is slightly weaker, Victoria remains consistently above the national figures on all counts except for industrial relations, which continues to be a source of concern for Victorian builders. This is potentially due to the continuing CFMEU EBA activity, with some employers signing up to the deal, and others waiting to see the outcome of the ABCC Bill following the double dissolution election. Builders are reporting ongoing delays in sourcing labour and expect increasing costs from this. In particular, bricklayers, carpenters, project managers and site managers have been consistently difficult to find over the last 12 months. Profitability in the industry remains close to neutral, struggling to reach the heights of the past, though profit expectations are buoyant.

Industry expectations

Results of Master Builders’ last sentiment survey saw Victoria builders’ confidence in their industry’s future dip slightly, sitting just below the natural mark and the five-year average mark.

Our Industry Expectations Index recorded 49.5 points for the June quarter, slightly down from the 50.3 points in the March quarter. This puts current levels above the national figure (47.3) but just below the neutral mark of 50, and slightly below the five-year average (49.8).

Master Builders notes that the Victorian State Budget announced at the end of April did provide some certainty of funding for larger infrastructure projects- committing to up to $7.4 billion a year for the next four years on infrastructure, compared to the average of $4.9 billion over the preceding 11 years. This, however, does not seem to have had a major impact on confidence, suggesting that other broader factors are of greater concern.

The continued drop of industry confidence in June may be a result of domestic events, including uncertainty leading into the July double dissolution federal election, the uncertainty of the future of the Australian Building and Construction Commission (ABCC), and international events such as such as Britain’s vote to exit the European Union and the upcoming American presidential election. How these events may affect ongoing infrastructure investment the economy is still unknown, but the current ambiguity is a concern for our members and business confidence.

It is hoped that confidence will stabilize and potentially improve now that the federal election outcome is known; however, the record number of independents in the Senate and their potential for slowing down the legislation process could be a concern for businesses.

Own business conditions

Current business conditions for builders in Victoria grew strongly in the June quarter- up from 59.9 in the March quarter to 65.5 points. This is the highest that activity has been since December 2010. This also contrasts with the national figure, which was virtually unchanged from March.

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 last three quarters, increasing slightly in the June quarter to 63.9 points from 63.5 in the March quarter. This put Victoria well above the neutral mark (50), the five-year average mark (56.6) and the national figure (59.1), reflecting the strong growth in the residential activity in the Victorian economy.

Stable job prospects

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

Our Employment Intentions Index has been slowly declining over the last year, dropping slightly from 53.7 points in the March quarter to 52.8 points in June.

While the Victorian index is trending close to the national figure, it currently sits just above the national figure 50.1, 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

The index measuring profitability improved from the March quarter from 48.3 to 50.5 in the June quarter. This puts Victoria comfortably above the national figure (48.6) but just below the five-year average of 49.4. This means that while the index has struggled to reach the much higher levels of the past, business profitability is satisfactory in Victoria and improving.

The Profit Expectations Index recorded 58.6 points, which is slightly less optimistic than the March quarter, which measured 59.3 points. This indicates that our members are still confident about the profit expectations for their business, sitting above the five-year average, and well above the national figure (54.8) and remaining strongly above the neutral mark of 50. This suggests that Victorian builders expect their business profits to improve over the next six months.
Master Builders’ research indicates a slight increase in the expected impact of wages on our members businesses. The Wage Costs Impact recorded 49.2 points for the June quarter, slightly up from 48.8 points in the March 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 45.2 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.

Industrial relations has consistently been an issue for Victorian businesses, and the most recent report demonstrates an increased concern with the matter, with the index increasing in the June quarter to 43 points, a jump from 40 points in the March quarter.

This is most likely due to the continuing uncertainty about the continuing CFMEU EBA activity, with some employers signing up to the deal, and others waiting to see the outcome of the ABCC Bill following the double dissolution election.

Victoria’s index rating is much higher than the national rating (35.5), 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 that Victoria currently has a greater level of concern with IR than the five-year average.

While the concern with IR seems to be trending upwards, 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 rises to accommodate Victorian population growth, the availability of labour, finding subcontractors/employees continues to be an issue.

In particular, carpenters, bricklayers, project managers and site managers have become much more difficult to find over the last 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 further difficulty finding certain categories of subcontractors/employees. Master Builders is aware of these challenges and continues to raise it in discussions with the government.

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.