Home construction accounts for around 8 per cent of the Australian economy. (ABC Radio Melbourne: Simon Leo Brown)
Since building its first house in 1957, Zuccala Homes has seen its fair share of highs and lows in Melbourne’s residential construction market.
- Housing construction is Australia’s fourth biggest industry, worth more than $100b a year
- As the slowdown intensifies many builders and sub-contractors are having to shed workers and cut costs
- Falling building approvals point to further deterioration in activity
With housing well and truly in a downturn, director Greg Zuccala said this was one of the worst he had seen.
“Builders are just battening down the hatches and looking after their costs,” Mr Zuccala told ABC’s The Business.
Melbourne house prices have fallen 9.6 per cent since their 2017 peak, and that is having big implications for home builders.
“We’ve probably seen a reduction of about 30 per cent of sales,” Mr Zuccala said.
“We do a bit of business with some investors, but mostly our bread and butter is owner occupiers.”
That huge fall in demand for new home builds meant Mr Zuccala had to find savings.
To do that, he was forced to lay off four workers.
“We’ve had to adjust things there to meet the market,” he said.
“I think a lot of building companies at the moment find themselves in the same situation.”
Residential construction is a $105 billion business in Australia, and as Australia’s fourth biggest sector, it accounts for 8 per cent of GDP.
Housing’s downward trajectory is not just hurting builders.
Electrician Ray Sherriff employs nine electricians and four apprentices working on a mix of residential and commercial projects in Sydney.
“Two years ago we literally didn’t have time to price all the [residential] jobs that were coming in,” he explained.
“Now it’s rare and there are lots of jobs getting postponed and put back.”
Residential work used to fill a big part of his work orders.
“Maybe three to four years ago we were looking at probably 50 to 60 per cent of our business,” he said.
“Now we’re probably looking at 20 to 30 per cent.”
Mr Sherriff said the diversification of his business was keeping the work orders coming in.
It starts with approvals
Bureau of Statistics figures showed national dwelling approvals were down almost 29 per cent in the year to January, to its lowest figure since May 2013.
Doing the maths, it is easy to see residential construction will continue to slow.
Only Western Australia and Tasmania are bucking the trend, with dwelling approvals on the way up.
Right now, the rate of contraction in house construction is the fastest it has been in six and a half years, according to figures by the Australian Industry Group’s Performance of Construction Index.
Activity in apartment construction has fallen for 11 months in a row to its lowest point in six years, at a time when the industry was recovering from the GFC.
With national house prices down 6.8 per cent since the 2017 peak, and down 13.2 per cent in Australia’s biggest housing market — Sydney — economists say it is no wonder those in construction are feeling the heat too.
“When you have house prices falling as they are at the moment, the risks of entering into that are greater,” said Master Builders Association chief economist Shane Garrett.
“That’s one of the reasons why activity is starting to move down.
“It’s a riskier predicament for all concerned.”
Work is drying up
Demand for the more than 1 million workers employed in the residential construction sector is waning.
Seek job ads show a 14 per cent fall in demand for construction workers in February.
Mr Garrett said he was increasingly being approached by workers.
“The hire agencies are ringing us regularly now and its not just with one or two guys. They’re ringing with 15, 20 guys looking for work,” Mr Garrett said.
The lack of opportunities in the housing sector is forcing workers to look outside the box.
“It’s just a matter of people finding if there are industries or new construction, different sorts of construction projects to work in, for example mining and infrastructure,” Seek’s Stephen Tuffley said.
Highest low on record
But it is not all doom and gloom.
While there is no denying we are in the midst of a downturn, and that is hurting the construction sector, the numbers are still good in a historical context.
Nationally, new home building peaked in 2016 with about 230,000 new dwellings.
“We see it bottoming out to about 175,000 over the next few years,” Mr Garrett noted.
“It’s worth emphasising, that 175,000 as a low point would still be the highest ever low point for new home building on record.”