A voice of reason amongst the distortion

There is a lot of new construction going on.

Builders

We have been experiencing a building boom and are now getting set for a surge in new infrastructure.

Both are largely influenced by government pump-priming — high levels of migration; low interest rates; loose foreign ownership/investment rules and debt.

True, that without this, our rate of economic growth would be much less.

But we have become very dependent on this assistance, so much so that one in ten of us now work directly in construction (that’s 1.2 million jobs) and when you fully cast the net, one in three Australian’s work directly, and indirectly, in property-related industries and ventures.

1-percent

This, to me, isn’t healthy.

We have become a nation of developers and real estate junkies.

In other relevant countries the proportion of jobs associated with property-related activity rarely exceeds 15%.

What’s next post this building and infrastructure surge?

How can the gravy train keep going?

What replaces these big built things?

Services?

Probably as we are told that we need to morph into a service economy.

But service industries are competitive — just look at what is happening retail of late — and that makes me laugh when I read about how wage growth is set to return. Service

Ha and good luck with that.

If you are outside of the building/property sphere you know how tough things, financially, have become.

For mine all this means is that the government will continue to do almost anything to keep our gravy train running, well until the next election at least.

And its likely be a close poll too.

Interestingly how most local economists have changed their interest rate forecasts from hiking this year, to now, rising slowly sometime, maybe, next year.

But I think our official cash rate will be lowered in an attempt to keep things steady.

Anyway, for now at least, it is full steam ahead.

Building things is keeping us economically afloat. Well just.

Charts

And this missive holds some charts that help explain what’s going on.

Maybe take 30 seconds to look them over.

Proxy

Some comments

1. Some $56.3 billion worth of new construction is taking place across Australia.  It was $65 billion worth last year.

2. A current breakdown by state/territory is:

State or Territory Total $ (billions) Distribution
New South Wales $15.1 27%
Victoria $12.4 22%
Queensland $10.7 19%
Western Australia $11.8 21%
South Australia $2.9 5%
Northern Territory $1.8 3%
ACT $0.9 2%
Tasmania $0.7 1%
Australia $56.3  100%

3. Queensland’s level of construction activity has dropped by over 30% in recent years, helping to explain the state’s current sluggish economy.

Contractor And Foreman Checking Financial Charts4. The figures in charts 2 to 8 and the table above are based on all new construction projects valued over $5 million. ‘Engineering’ — see chart 3 — includes everything outside of new building activity, including maintenance, repairs and demolitions.  It also includes mining exploration.

5. Hence the boost in recent construction activity in Western Australia, where some 15 new mining projects are being investigated/proceeding, and the fall in Queensland’s new construction activity.

End note

If I wear my rose-coloured glasses, last year was a year of job creation.

The boost in construction during 2017, as shown in charts 2 and 3, helps support this claim.

And again, with an optimistic outlook, the next 12 months ahead looks like a period of job consolidation.

So little change in unemployment levels and underemployment too.

But I cannot help thinking that this good news is only short-term.

“Work done” may turn out to be a very apt title indeed.

Property investors 570x292


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About

Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive


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