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  • Writer's pictureJohn Lowry

What Will the Future Bring to Construction Costs?

Major Australian Quantity Surveying firms are of the general opinion that construction growth in Queensland over the next two years will be modest at around 4% - 5% per annum, with an expected upturn in industrial and warehouse buildings and a strong population growth, presumably following the customary trend of strong internal migration as cost of living pressures rise in Sydney and Melbourne. Qld. Master Builders forecasts a fall in demand for non-residential construction, although it forecasts industrial and warehouse construction will experience strong demand. It also recognises that access to finance will act as a drag on growth.

These forecasts are not borne out by demand statistics. Population growth in Queensland is below the 10 year average, with Brisbane and surrounding population engines (apart from the Gold Coast) modest.

Warehouse building approvals spiked in August 2018, followed by a dramatic fall in December. Whilst the August approvals indicate strong new year building starts, the annual change in value of building approvals is negative, at -31.4% from December 2017. The total value of approvals fell 32.5% between 2017 and 2018.

The Australian Construction Industry Forum (ACIF) the national peak construction body, indicates industrial / warehouse workload fell sharply through 2008. Whilst a slow recovery is predicted it is not forecast to reach the high of 2017/2018 until after 2021. Commentary on the residential side is more mixed. Some commentators believe there may be a pickup in demand through 2019 if Labor's negative gearing policies are announced. Respected researcher Michael Matusic tells us that there is a very large stock of approved residential units awaiting construction, mainly in large projects. However only 10% are under construction and a furthre 28% are likely to commence over the next 3 years. Many of the proposed developmens are struggling to achieve sufficient pre-sales to trigger construction finance and others, having developed for the investor market, may find themselves with the wrong product as the market shifts to downsizers, retirees and aged households.

In view of the poor demand forecasts, I would not expect construction costs in Queensland or Brisbane to exceed the lower end of projections between 3.1% and 3.5% for at least the next 12 months, without some major stimulus.

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