Is the construction market undergoing change, is it under the pump, or is it simply under pressure in these changing and often volatile times? It’s a curly question that demands some straight answers and in this Industry Trends article we will be looking at some of the factors that pave the road to understanding what’s going on with the construction market.
There are murmurings from both here in Australia and across the ditch in New Zealand that not only are times tough in construction, but they may well be getting tougher still. As always, to better understand where we are at, and for that matter where we are going, let’s start at the beginning – or at least five or six years ago.
How did we get here, and where is here?
Well, let’s look at what happened in and around New Zealand and see if that origin story makes sense across the Australian market. According to a number of governmental, commercial and private commentaries, the construction market in New Zealand prior to COVID was moving along quite nicely without setting the world on fire. COVID, plus it’s associated lockdowns saw people and businesses with means and opportunities turning towards home and building improvements. On the renovation, remodelling and refurbishment front, home improvements became a popular alternative to doing relatively little. The consensus was that this phenomenon had fuelled a sharp uptick in building consents throughout New Zealand. When people started returning to normal life, building projects were still on people’s minds and commercial agendas as project progress had been stymied by all the difficulties associated with lockdowns.
With suddenly more access and desire to build, corporate, government and private completionists increased demand almost exponentially while the world of procurement and supply chain grappled with the demand.
Fast forward to the last two years and both markets are still grappling with ways to satisfy unmet demand due to a perfect storm of all too familiar issues affecting the construction industry along with so many others.
The usual suspects that usually slow the construction industry
Yet again, the construction industry has been beset by increased:
- labour costs
- material costs which are a major contributor to cost of goods overall
- logistics costs which also weigh heavily on the bottom line.
We’ve seen all these before in varying proportions however a familiar player in the form of interest rates has been having a disproportionate effect on the construction industry.
Interest rates are of course a major contributor to investor confidence on both the commercial and residential building front. This also has a knock-on effect in terms of public infrastructure driven construction. On that, we’re still seeing government investment being scrutinised, reconsidered, re-reconsidered and ultimately stymied as murmurings around market capacity, cost of completion, likelihood of completion, all contribute to a closer examination of budgets. That’s Australia.
But the interest rate piece is also true in New Zealand where less than favourable interest rates have kept construction on the slide. That said, recent cash rate cuts may actually give housing development a shot in the arm.
A closer look at these familiar factors
Skilled labour shortages have driven up costs as project managers (both commercial and residential) do what they can to secure the services of available suppliers and trades. Global supply challenges, as mentioned previously, trump those concerns as tariff-driven disruptions, geopolitical-led disruptions, weather events and more, all:
- apply downward pressure on the market
- tighten the scrutiny on budgets
- call into question set timelines
Again, these factors feature prominently, along with economic factors like interest rates, to a narrative that suggests there are more challenges than solutions currently.
However, pockets of relief for a generally beleaguered construction sector particularly in Perth and Melbourne have been sighted. Both markets showing some welcome signs of stability. Sydney on the other hand, with its lack of significant competition across some metro centres, is seeing costs pushed up even further and scarcity of skilled labour and materials could continue to prove to be an ongoing limiting factor.
While facing many of the same issues, New Zealand may well suggest that while the construction market has certainly been softening, in reality building consent figures simply returned to the pre COVID trendline – a correction of sorts. Most will agree however, that the market outlook is challenging to say the least but there is guarded optimism. Optimism that is shared, cautiously, here in Australia now that interest rates rises have been curbed for the moment.
How can we, in supply chain, help?
If costs are the handbrake on the construction markets progress, then cleaving to the supply chain tenets of adaptability, resilience and dogged pursuit of efficiencies and cost control measures may prove to be the accelerator.
Now, it is important to reiterate that interest rates, geopolitical factors, skilled trades and the supply of raw materials along with a continued focus on renewables has a major role to play in any kind of recovery. But a dose of realistic optimism coupled with innovative strategic plans around adding value will absolutely contribute to a marked if not full recovery for the construction market throughout Australasia.
