The Masters Builders Australia (MBA) have delivered a stark warning today that the expected acceleration in residential construction won’t be anywhere near enough to offset declining engineering construction and the once-in-a-century mining investment boom unwinds. From The AFR:
Apartment and other residential building will strongly recover in the next three years but the growth will not be enough to prevent an overall construction downturn, an industry report says.
The value of residential building, in real terms, could grow more than 25 per cent, from $48 billion in 2012-13 to $62 billion in 2015-16, the report by the Master Builders Australia says.
Dwelling starts could rise from about 160,000 in 2012-13 to nearly 200,000 by 2015-16 with NSW, Queensland and Western Australia the strongest performing states, it says …
But the subdued outlook for non-residential building and a decline in engineering construction meant industry conditions would not improve overall…
MBA chief economist Peter Jones said the forecast improvement in residential building came from a very low base and policymakers had to address impediments to supply that contributed to the nation’s shortfall in housing…
Obviously, the MBA’s warning accords with the views expressed on MacroBusiness for more than a year – a view that is based on simple arithmetic. The fact of the matter is that engineering construction (a proxy for mining investment) is currently more than 2.5 times the size of residential construction (see next chart).
This means that for every 10% decline in engineering construction, residential construction would need to lift by around 25% just for overall construction to remain unchanged (other things equal).
With mining-related capital expenditures (capex) currently hovering around record highs (see next chart), significant declines in capex are all but certain in the years ahead, with residential construction obviously poorly placed to fill the void.
The RBA’s hope that dwelling construction would offset the mining capex downturn was always a forlorn hope, particularly in light of the planning straightjacket in place across the nation.
