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With the growing supply chain pressures and building material price escalations, the construction industry in Australia is navigating difficult market conditions. A number of construction firms have been placed into administration and liquidation. This is because many players owe millions of dollars to suppliers, subcontractors, owners of unfinished homes, and workers in entitlements. However, amid this current construction industry environment in Australia, the increasing spending from the government on key infrastructure projects is expected to support the industry growth over the next three to four years.
In its March 2022 budget announcement, the Australian government committed US$13.4 billion or A$17.9 billion to finance infrastructure projects in the country. This additional spending has brought its ten-year rolling transport infrastructure investment plan to US$89.9 billion or A$120 billion. This represents additional funding of A$2.7 billion outlaid for transport infrastructure in the 2021- 22 Budget. Furthermore, the Australian government has committed US$5.5 billion or A$7.4 billion in funding for the construction of water infrastructure.
Notably, the infrastructure ministry has also prioritized the development of inland rail and building infrastructure around the Commonwealth Games and Olympics. For instance,
Along with the national government, spending on infrastructure projects from state governments is also expected to support industry growth in the country over the next few years. For instance,
While the Australian construction sector is seeing a strong inflow of infrastructure projects and spending from the regional and national governments, the labor shortage issue faced by players in the sector is resulting in delayed projects across the country. For instance,
Across the New South Wales region, local, state, and private sectors are competing for skilled labor. However, the shortages have resulted in month-long delays to infrastructure projects. This difficulty in securing contractors and workers is expected to persist in the short term in Australia. The labor shortage issue, along with the growing supply chain bottlenecks, is projected to hamper the growth of the industry in Australia over the next few quarters.
Notably, the home builder scheme launched by the federal government during the global pandemic outbreak in 2020 has resulted in a substantial increase in building approvals, thereby driving the construction demand in the country. With this showing no signs of slowing down, the rising construction demand has created a significant impact on the availability of building materials. Thus, driving the cost of building materials, which is expected to further increase over the next few quarters.
This rise in the prices of building materials is consequently expected to have an impact on the margins of construction firms. As a result of these mounting costs, a number of private builders and construction firms have gone out of business in Australia over the last few quarters. While government spending will keep supporting the growth of the construction industry, the rising cost of building materials and labor shortage issues will hamper the market growth in the short term.
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