Will COVID crush Queensland construction?

Queensland property prices are standing firm in the face of COVID, but the construction industry is beginning to buckle. It was already in a state of weakness prior to the pandemic, robbing it of the resilience to weather the shutdown storm. Since the construction industry plays a huge part in the health of the property market, there's plenty to be concerned about.

Looking to the building approvals data from the Queensland Government Statistician's Office (QGSO), Queensland's total dwelling approvals dropped 1.8% between February to March. A possible culprit could be the predicted halt of immigration, but that fails to explain why Australia as a whole still saw an increase in that same period. Australia's dwelling approvals increased in the two months prior to that as well, with February jumping 1.0% and January 0.5%. In contrast, February saw an uptick of just 0.4% in Queensland - that off the back of a 0.7% decrease in January for the state.

"This will take us down to a level not seen in the 35 years that records have been collected."

The year-on-year trends are even more concerning. In March 2019, Australia's dwelling approvals plummeted 22.4% from the same time a year earlier. For Queensland that decrease was an eye-watering 35.1%. A year later in 2020 Australia had begun to recover, recording a 1.0% increase. Queensland meanwhile saw a further drop of 7.8%.

Ultimately what all of this means is Queensland couldn't have been less prepared to handle a crisis. "The residential sector isn't facing the coming headwinds from a position of strength," states Master Builders Deputy CEO Paul Bidwell. "The 12-month total of dwellings [in Australia] isn't far off the post-GFC low point - and that's without the impact of COVID-19, which we don't expect to really begin to hit until August/September 2020."

Bidwell isn't expecting it to bounce back quickly, either. "High unemployment and low population growth will stifle demand for a long time to come, and Master Builders Australia now forecasts that new homes started in the current financial year will fall 26%, and then another 31% in the coming financial year," he says. "This will take us down to a level not seen in the 35 years that current records have been collected." These are alarming figures, but can they be helped?

"We can't wait until the industry grinds to a halt before stimulus is introduced."

Bidwell says the industry desperately needs help from government in the form of economic stimulus, and Mike Roberts, Queensland's Executive Director at the Housing Industry Association (HIA), agrees. "With over 200,000 people directly employed in the residential building industry in Queensland, the need to stimulate activity in this sector needs to be a priority of all three tiers of government," Roberts explains. "The long lead times associated with building a home means that stimulus is required now to lessen the impact later in the year. We can't wait until the industry grinds to a halt before stimulus is introduced; that would be a catastrophe."

Without serious economic stimulus injected into Queensland's construction industry, the worst case scenario would likely mean thousands more Queenslanders falling into unemployment. "The tradies who do the concreting, bricklaying, the carpenters, electricians, plasterers, plumbers and painters will all be out of work," warns Roberts. "The ramifications for the Queensland economy will be widespread if action isn't taken sooner rather than later."

Not only will an unemployment spike place further strain on the already overburdened social safety nets in Queensland and Australia, the treasury relies on the construction and property sectors. "Governments at all levels derive significant revenue from new housing with GST, stamp duty and infrastructure charges," adds Roberts. "Now is the time for them to work together to get this industry going."

Earlier in the week the Queensland Government announced a $400m road stimulus package designed to "supercharge" jobs and the state's economy. It's a welcome measure, says Master Builders' Paul Bidwell. Whether Queensland's construction industry will see further stimulus - particularly in the residential sector - will have a lasting effect on our state's construction and property market for years to come.

*Note that all data listed is trend data, as opposed to seasonally adjusted. Dwelling approvals reports can be found here: https://www.qgso.qld.gov.au/statistics/theme/industry-development/housing-construction/building-approvals

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