Residential Housing Leads the Way for NSW Construction

Residential housing is expected to lead the way for the NSW (and ACT) construction industry in the coming year. In this article we look at some of the trends for the NSW construction industry and how they are expected to play out in the short, medium, and longer term, with implications for property investment.

In the Past Year

Although total building and construction work done was slightly down during the second quarter of the 2010/11 financial year compared with the same quarter in the 2009/10 year.

• Overall construction activity was up by 5.19 per cent in the first six months of 2011 compared with the first half of 2010. The respective figures were $21.22 billion and $20.17 billion.
• The value of building projects approved for NSW and ACT during the first seven months of 2011 were well up from the same period in 2010, with nearly $11 billion for 2011 compared with $9.15 billion in 2010.

Future Trends

Short-Term Trends

Industry research groups predict an overall increase in building projects, with the majority of growth coming from residential projects.

• Leading industry research group BIS Shrapnel has predicted a 15 per cent increase in overall building starts for 2011/12 with a 14 per cent increase in 2012/13.
• BIS Shrapnel suggests that the majority of growth will come from residential construction. While there will be a contraction in education and health-spending industries, this will be offset by non-residential building in the commercial and industrial sectors.
• The Construction Forecasting Council (‘CFC’) suggests that the value of construction work on new houses will increase from $5.494 billion to almost $50 billion from March 2011 to March 2012.

Longer Term Trends

Over the longer term, the CFC suggest that growth will increase significantly.

• In 2012/13, the value of construction work will grow by 8.7 per cent to reach $45.87 billion.
• By 2014/15, the CFC expects overall construction projects to reach almost $50 billion.
• The value of construction work on new houses will reach $9.132 billion in 2015/16.
• Office building activity is projected to grow to $2.222 billion in 2012/13, up from 1.847 billion in March 2012, in part due to a boost from the redevelopment project of Barangaroo at Miller Point, which is valued at $6 billion alone.

On multi-residential projects, the CFC expects a jump from $4.455 billion in March 2011 to $5.790 in 2012/13, largely due to large projects such as The Landing, Gosford, and Penrith Panthers’ landholdings redevelopment.

With the development of the Southern Distribution Business Park at Goulburn, industrial sector building activity is projected to growth from $782.2 million to $1.103 billion in 2012.

Housing Shortfall in NSW

The strong performance of residential construction is good news for Sydney, where the current housing under supply has been estimated to be around 46,000 homes, according to the Urban Taskforce’s chief executive Aaron Gadiel.

Property values and rental prices are likely to continue rising, with the housing shortfall likely to double to 80,000 homes by 2014, making Sydney an solid place for those seeking investment property.