Spending growth in the residential construction sector will overtake spending in the engineering and non-residential sectors in the medium to long term, according to new research released this week.
However the research, released by the Construction Forecasting Council (CFC), shows that spending on residential construction will fall in the short term from historical averages.
Australian Construction Industry Forum (ACIF) chairman Neil Marshall said the outlook for residential construction spending had improved in the past six months.
"When the CFC first released its residential forecasts six months ago, growth in construction spending was forecast to rise by 3.6 per cent p.a. over five years and 3.5 per cent p.a. over eight years," Mr Marshall said.
"The CFC now forecasts that spending growth on residential construction will be 7.2 per cent p.a. over five years and 6.1 per cent p.a. over eight years, a significant improvement," he said.
Property Council CEO Peter Verwer forecast that spending growth for all types of residential building construction will drop below the seven-year historical averages in the short-term.
"Growth in residential construction spending will drop from the seven-year historical average of 9.7 per cent p.a. to just 1.0 per cent p.a. over two years," Mr Verwer said.
"However, over the next five years it will rebound to 7.2 per cent p.a., and to 6.1 per cent p.a. over eight years," he said.
"The apartment market is forecast to be the hardest hit, with growth in construction spending dropping to -5.5 per cent p.a. in the short term, from a sector-leading high of 14.2 per cent p.a. However, it must be noted that apartments, too, will rebound over the medium to long term, to 5.2 per cent p.a. over five years and 4.7 per cent p.a. over eight years."
Mr Verwer said that growth in residential construction spending will be driven in the long term by small alterations and additions construction.
"What we're seeing here is proof of the `Jamie Drurie effect'," Mr Verwer said.
"Residential construction growth is being boosted by families spending money on relatively small improvements to their homes."
"Construction spending in small alterations & additions is forecast to grow at 11.2 per cent p.a. in the medium term, and 8.7 per cent p.a. over the long term," he said.
"In fact, spending growth on small alterations and additions will continue to outpace growth on new housing, apartments and large alterations and additions for the next eight years."
Mr Verwer said that, by state, Victoria, South Australia and Queensland will fare best in terms of residential construction spending growth over the short and long term.
A snapshot of residential construction spending growth, by state, shows:
NSW - new houses will do well in the short term, but apartments and small alterations will do poorly. In the long term all sectors will show roughly equal growth, with the exception of small alterations, which will lag behind spending on other types of residential construction.
Victoria - the apartment market will be hit very hard in the short term, and will not recover over the long term. With the exception of small alterations, other sectors will decline in the short term, but in a lesser fashion. In the long term small alterations will show good growth.
Queensland - all sectors, with the exception of small alterations, will be hit hard over the short to long term. It should be noted that Queensland is coming off a high base.
WA - the apartment market will continue strong growth over the short and long term. Both new houses and small alterations will post negative growth in the short term, and won't recover to historical levels within eight years. Large alterations will slowly decline over the long term.
SA - there will be declines across the board in the short term, with the exception of small alterations. Apartments and small alterations will be the only sectors to show more than 2.0 per cent p.a. growth in the long term.
Tasmania - apartments will lead growth in this state, spiking very high in the short term. Even in the long term it will still be significantly higher than the historic average. All other sectors will show poor or negative growth over the short to long term, with the exception of small alterations, which will spike in the medium term.
ACT - new houses will continue to post strong growth, albeit weaker than the historic average. Large alterations will hover between 6.2 and 7.6 per cent p.a.
NT - new housing will spike in the short to medium term, and will still be performing strongly in the long term. Apartments will do poorly in the short term, but well in the medium to long term. Small alterations will show a massive decline in the short term, and continue to decline over the long term.
The CFC, an initiative of the Australian Construction Industry Forum (ACIF), commissioned the research, which was conducted by economists Econtech. It was sponsored by ACIF, Econtech, the Property Council of Australia, Reed Business Information, the Australian Institute of Quantity Surveyors, and the Royal Australian Institute of Architects.
