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Industry Report 2020 – Construction

While COVID-19 has put many jobs and businesses under threat, the construction industry has kept of working. However, the sector is usually slow to respond to shocks in the global economy, and this has been no exception with many repercussions still yet to unfold. Master Builders Associations in all states continue to lobby that construction sites stay open and operational through the crisis, arguing that the economic contribution of the industry is vital to the economy[1]. Arguably, this is of particular importance to regional metropolitan areas of SEQ such as the Sunshine Coast and Gold Coast[2], as wage growth of the mining and construction sector is tied directly to the performance of other industries through consumer spending.

IBIS Industry Reports examine some of the key areas of construction and evaluate business risk[3].

Building Construction:
Risk – HIgh
The spread of COVID-19 is anticipated to highly affect the building construction industries. International trade is not applicable to building construction industries, as they exclusively operate domestically. However, building construction is highly labour-intensive, and relies heavily on contract labourers. Building construction firms also require equipment and materials. Firms may experience delays in completing projects if supply chains are disrupted. Lower interest rates are anticipated to stimulate demand for some building construction. However, reduced foreign investment in projects may negatively affect the subdivision. Low oil prices may lower operating costs for some firms, assisting business viability. Weak demand for new housing is also anticipated to negatively affect residential building construction industries, as many people are electing to delay purchasing or moving into new homes. A survey conducted by Master Builders Australia revealed that over 70% of respondents reported major declines in planned projects, with residential building firms among the most affected. The Federal Government’s three-step plan to ease restrictions is not anticipated to significantly affect this sector’s activities, as these businesses have been able to operate throughout lockdown conditions. However, the easing of restrictions may boost demand for new buildings from other sectors.

Construction Services: 
Risk – Moderate

The spread of COVID-19 is anticipated to have a moderate effect on construction services. These services are not exposed to international trade and focus entirely on the domestic market. Operators in these industries require materials such as nails, screws, adhesives, concrete, steel and timber, and equipment. In addition, these industries are highly labour-intensive. Any disruption in materials or labour supply has the potential to negatively affect the subdivision. Operators that service construction firms are anticipated to fare better than operators that service consumers, as negative consumer sentiment is discouraging people from having expensive, discretionary work done, such as painting and decorating services. Furthermore, operators that service infrastructure or institutional building construction firms are anticipated to fare better than those that service residential building construction firms, largely due to weak demand for new housing. Many of these firms have been able to operate throughout lockdown conditions. However, the Federal Government’s three-step plan to ease restrictions will likely boost demand for construction services by improving the financial situations of downstream consumers and businesses.

 

With continued support for workers, apprentices and businesses through Government Relief Packages, the immediate outlook is stable for the industry. However due to the disruption to supply chains and foreign investment, it is likely the volume of projects may dwindle, so it is prudent that businesses put in place plans that deal with the ramifications of this slowdown such as contractual obligations and cash-flow. A total shutdown could lead to a spike in court claims and counter claims between builders and clients, so keeping construction moving is not just about keeping companies afloat, but also the interests of other stakeholders.

On a more practical note, the current social distancing recommendations and other health and safety measures are slowing workers down on site – but as many are saying “it’s better to work slower than not at all.” What seems to be the consistent stance of the industry bodies and the government is that total shutdown should be avoided until all other options are exhausted.

 

What businesses can focus on:

  1. Re-evaluating what a slower delivery schedule would mean for them and their clients.
  2. Additionally – scenario planning for supply chain disruption in 3-6 months’ time should be on the agenda by drafting plans to both diversify your supply lines and also mitigate the impact of shortages. qld.gov.au has various programs available to assist businesses.
  3. Accessing the relief packages available to businesses through Federal, State and Local Government. Here is an updated list of links to information on such programs.

 

Our team of Business Experts take scenario planning seriously. Let us help you navigate these tough times, and put strategies in place so you can be best prepared for any challenges ahead. Don’t hesitate to reach out to any of the firm’s partners – we’re here to help.

Contact our Construction Specialists:

Darren  Laarhoven: D.Laardoven@uhyhnseq.com.au

Reece Jory: R.Jory@uhyhnseq.com.au

 

References:

[1] https://www.mbansw.asn.au/covid19

[2] https://s3.treasury.qld.gov.au/files/SEQ-Economic-Foundations-Paper.pdf

[3] https://www.ibisworld.com/industry-insider/press-releases/ibisworld-releases-covid-19-special-report/

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