The Federal Budget has laid the foundation for the emergence of significant growth in the Australian property and construction industries into 2011, according to international construction consultants Davis Langdon.

Davis Langdon’s Senior Economist and National Research and Development Manager, Dr Andrew Wilson, said that with GDP forecast to rise to 3.25% in 2010-11, planned construction activity levels in all sectors are expected to recover to levels recorded prior to the impact of the GFC in 2009.

He said building activity associated with infrastructure development and mining will be particularly strong as a consequence of Government spending initiatives, particularly in regard to rail and road transport, and the forecast continued strong international demand for resources and its impact on commodity prices.

“Our offices in the US and UK report that those markets are making quiet but sustained recoveries, and with the European Sovereign Debt crisis likely to be contained in the short-term – all good news for Australia through the unrestrained juggernaut of the China economy – GDP growth may be closer to 4% than 3% into 2011,” he said.

Recently released research by Davis Langdon showed signs are starting to emerge of a nascent recovery in commercial and industrial construction in major Australian markets, fuelled by economic recovery.

Dr Wilson said with on-the-ground construction activity levels having been supported through 2009 and into 2010 by Government spending initiatives, notably the BER program, there is a strong likelihood for capacity constraints emerging in the shorter-term, particularly in regard to skilled labour and this is worrying the sector.

“The potential for labour shortages will be exacerbated by high levels of skills-demand from the resource-rich states, and the recent strong performance of apartment construction in most state markets and our recent research shows that this is a major concern for the industry,” he said.

“Already there are reports of employers struggling to find suitable local staff. “The Budget confirms positive employment outcomes for the economy through 2011, forecasting unemployment to fall below 5% into the “full employment region”.

Dr Wilson said that initiatives announced in the Budget designed to bolster Australia skills base through directed training and immigration programs, will not be effective in the shorter-term to offset the real prospect of rising labour costs in the construction industry.

“With burgeoning demand reducing the competiveness of tender markets, together with rising labour costs and some key material shortages, and the likelihood of rising fuel prices through global growth, construction costs may rise by more than 4% in most Australian markets in 2011,” he said.

“Accordingly the Budget inflation forecast of 2.5% for 2010-11 appears optimistic, with a figure above 3% being more likely. This outcome would indicate upward pressure on interest rates through 2011 to dampen demand.”

Dr Wilson said with the forecast move of the Budget into surplus sooner than expected and a possibility given strong growth that this may occur in 2011-12, it was perhaps opportune for the Government to instigate in the Budget the development of proactive Green initiatives specifically associated with the Built Environment. 

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au