14th April, 2020

Australia and New Zealand: Construction industry updates

This article examines the state of the construction industries across Australia and New Zealand, revealing stark differences as both face clear challenges to come.

Due to government restrictions, social distancing needs, and the economic fallout due to the impact of COVID-19, most industries are suffering right now.

The construction industry, as you’d imagine, is no exception.

Considering the size and importance of this sector in both Australia and New Zealand, negative consequences affect many people, both directly and indirectly.

In Australia, this sector (which covers everything from planning and surveying, to structural construction work and finishing services), produces approximately nine percent of the country’s Gross Domestic Product (GDP).

According to the Australian Industry and Skills Committee, the industry also generates more than $360 billion in revenue and recently had a projected annual growth rate of 2.4 percent in the next five years.

In New Zealand, construction is similarly a vital part of the country’s economy.

In 2018, the industry was the third-highest contributor to the country’s GDP, according to Stats New Zealand.

Plus, the sector has been growing, too. In the year to February 2019, the construction industry added 3.9 percent more employees.

This was the second-highest increase among all industries, both by percentage and number results.

Today, though, things are in a state of flux as businesses and sole traders adapt to changes and wait to see what further repercussions arise.

Construction shutdowns compared

At the moment, Australia’s one-million or so construction industry workers, plus the many self-employed people in the sector, can continue to do their jobs.

Construction and mining sites, plumbing services and many more are considered essential business.

They have not had to shut down in any of the states or territories.

The Prime Minister, Scott Morrison, has indicated that construction will remain an essential service if further shutdowns occurred.

But the new normal at construction sites across the country is for workers to follow safety measures such as social distancing and increased hygiene practises.

Some companies, particularly the larger construction firms, are also incorporating tactics like staggered shifts and break times, visitor restrictions to sites, using outdoor areas for meetings, plus site-wide decontaminations.

By contrast, New Zealand’s construction industry has been impacted much more significantly by shutdowns.

With Level 4 restrictions in place, there are rules in place regarding the type of work allowed in the building and construction sector right now.

For example, only tradespeople and construction workers who must carry out essential services can work outside of isolation.

Even on existing job sites, non-essential building work isn’t permitted until the COVID-19 restrictions lift.

People can’t return to sites to carry out work or set up new ones unless the work falls within the category of essential business.

Similarly, when it comes to services within homes, New Zealand tradespeople are only allowed to complete tasks deemed as essential work.

In general, building and construction work is only allowed if it’s a must because it relates to maintaining critical infrastructure and imperative services.

For instance, this covers requisite repairs, necessary maintenance work and monitoring checks, and responses to defects and activations (such as fire alarms).

Work addressing immediate health or safety risks, preventing serious environmental harm, or providing relevant essential supply chain elements also makes the “allowed” list.

As the situation changes and criteria update, people in the construction industries should stay informed and determine if their work comes under the “essential” umbrella or not.

Construction industry outlooks

Until recently, the commercial construction industry, in particular, had been going well in Australia, and construction in general in New Zealand had been thriving.

But, this state of affairs is now radically changing as the impacts of the COVID-19 crisis deepen.

As you’d imagine, with such strong shutdowns in place in New Zealand, the industry is starting to collapse, and many jobs and businesses could be lost.

According to Infrastructure New Zealand chief executive Paul Blair, many of the country’s infrastructure firms (contracting and construction companies) are within weeks of insolvency.

This situation puts up to 30 percent of the jobs in the sector at risk within the next three months unless many businesses can return to work ASAP.

As for firms that provide advisory and other support services in the industry, they might be in the same critical position within six months, according to Blair.

There are also other considerations, such as likely hampered building demand over the coming year due to economic uncertainty, and risks of shortages of construction materials due to supply chain disruptions locally and abroad.

NZ construction sector sets sight on speedy recovery

But, once the Alert Level lowers in New Zealand and more construction activity resumes, the industry will hopefully bounce back relatively quickly.

The Government has put various billion-dollar support measures in place to help individuals and businesses to remain solvent, including wage subsidies, deferred mortgage schemes, and short-term credit options.

Plus, big infrastructure projects will be fast-tracked by the New Zealand Government.

Infrastructure Minister Shane Jones announced recently that the Government wants to boost the economy after lockdowns lift by funding large, “shovel-ready” projects.

A group of industry leaders brought together under the Infrastructure Industry Reference Group have been tasked with putting forward projects from the private and public sectors that are ready to go as soon as the construction industry returns to normal, or that could start within six months.

The group will look for projects with values of more than $10 million, to help stimulate the construction industry and economy in general.

These projects would also need to have a public or regional benefit and create jobs.

Australian construction sector: slowing, with challenges ahead

In Australia, most major projects are continuing as planned for now, and most residential projects are also still on track as builders keep working on homes under construction.

And while industry personnel can go and do their jobs, the reality is that we’ll likely feel the effects of the COVID-19 pandemic for years to come.

This is especially the case in the residential sector, where demand was already falling before the outbreak.

Now, with the economic uncertainty and talks of a recession, homebuyer activity is sure to contract further.

Home builders around the country have already seen the number of sales plummet in recent weeks.

According to Burbank Group managing director Jarrod Sanfilippo, whose business builds homes in regional Victoria and outer Melbourne, their sales have slumped 40 percent as people reconsider their property plans.

It’s also more difficult for those wanting to build or renovate to inspect display homes and design centres due to social distancing needs.
The public can’t enter most display homes now except for pre-booked, individual appointments.

Many builders and designers are setting up online galleries and video walk-throughs.

There are also new virtual meeting protocols in use for times when clients need to discuss plans with architects, engineers, designers, builders, and other relevant personnel.

Yet, for many people, the lack of in-person opportunities will limit their confidence in starting or continuing projects.

Another worrying sign is that the Australian Industry Group/Housing Industry Association’s Australian Performance of Construction Index (Australian PCI) fell by 4.8 points in March.

This figure was the lowest monthly result since May 2013.

The monthly report also showed a sharp decline in the index when it came to new orders.

Supply chain woes, stimulus and changing work conditions

In Australia, the construction industry is being severely affected, at least in the short term, by debilitated supply chains.

Material shortages have been occurring due to restrictions of movement within the country and internationally, leading to project completion delays.

This issue shouldn’t cause trouble for too long, though, with some predicting a supply chain recovery by the second half of this year.

On a more positive note, the Australian Federal Government’s earmarked $130 billion for wage subsidies over the coming six months, through its JobKeeper program, will help to stave off job losses across all industries.

Other government support, such as loan repayment deferrals, increased instant asset write-offs, early access to superannuation, accelerated depreciation deductions, and easier access to loans, will greatly assist businesses in the trade and construction space in staying afloat.

Another plus for many construction businesses, employees, and contractors is that work hours on sites in New South Wales and the City of Melbourne have recently been extended.

Sites in these areas can now operate on weekends and public holidays.

This move makes it easier for workers to abide by social distancing rules, which reduces the likelihood of people falling sick with the virus.

It also minimises lost productivity during the pandemic. In turn, this helps to keep as many people working as possible.

When will things return to ‘normal’?

No one knows exactly what the coming months and years will bring for the construction industry.

Thankfully, though, both Australia and New Zealand entered the crisis in reasonably decent economic positions compared to many other countries.

This fact means that those nations’ governments can put large measures in place to stimulate the economy and help to keep businesses afloat and employees in jobs.

Over time, we’ll hopefully see construction work rebound and even grow as life eventually returns to ‘normal’.