The latest ACIF Forecasts indicate that the value of building and construction in the residential and non-residential sector is expected to be below trend in 2011/12 and 2012/13, before picking up in line with rising economic activity including recent rate cut decisions by the Reserve Bank and improved access to credit.

New house activity has slowed, with lending finance growing little over 2011/12 to date. Consequently, nominal activity is forecast to grow by 1.8 per cent in 2011/12. Housing construction is expected to remain weak for the rest of 2011/12, with investment discouraged by the uncertain economic outlook.

There is a significant housing shortfall of dwellings, which, along with demographic factors, are the key drivers of the long-trend growth in new house demand. With this strong underlying demand for housing, it is expected that new construction will recover in the latter part of 2012/13.

Growth in other residential activity is also expected to pick up from late 2012/13 onwards. Demographic trends of higher population and changes in household formation are expected to drive relatively stronger growth in this type of residential building during the recovery (particularly in Sydney).

Alterations and additions softened in 2011/12, in line with more cautious spending by households and growth is expected to remain slow until 2013/14.

Image - ACIF

Non-residential building also continues to stagnate. The BER stimulus, which has been wound back, masked the significant declines in private sector non-residential building investment.

However, with stronger economic growth projected over the next few years, retail building activity is forecast to recover over the medium term to pre-GFC trend rates of growth. Geographic shifts in economic activity and population also drive demand for new and expanded retail spaces in areas of rapid growth.

The re-emergence of office building demand is forecast to continue to grow over 2012/13, followed by a moderation in subsequent years. However, office construction is not forecast to reach its pre-GFC levels in nominal terms until 2014/15.

After a significant decline of around 40 per cent during the GFC, industrial building has shown a modest recovery and this is forecast to continue. Demand for industrial building is a derived demand, responding to growth in other sectors of the economy.

Health and aged care building activity has remained strong over the past year, reflecting the construction of new hospital projects in a number of states. While activity is forecast to ease back, health and aged care building activity is forecast to remain strong into the future. As the Australian population grows, and importantly, ages, this sector should continue to see strong demand driven growth.

Accommodation building activity is expected to return to trend over the short term, although the tourism industry continues to face challenges caused by the relatively high Australian dollar and weak global demand for travel. Major events such as the 2018 Commonwealth Games in the Gold Coast are expected to improve the medium term outlook for the sector.

Image - ACIF