Australia / Industry Insights
Construction industry defying short-term oversupply conditions

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by Liam Green
Oct 16 2018

The Multi-Unit Apartment and Townhouse Construction industry is expected to steadily grow over the next five years, defying short-term oversupply conditions that have persisted in several markets.

“Multi-unit residential commencements are expected to fall sharply, threatening industry revenue,” says IBISWorld industry analyst Anthony Kelly.

Industry operators construct a range of high- and medium-density residential buildings, including suburban flats, military barracks and designer retirement communities, and provide general renovations and repairs to multi-unit residential buildings. The industry has low market share concentration, with many small- to medium-scale contracting firms operating in the industry.

Industry revenue is expected to continue to fall in 2019-20 as oversupply conditions and a lack of foreign investors persist throughout the industry. However, IBISWorld expects a rise in demand for new housing and rental accommodation will drive industry revenue growth at an annualised 4.8% over the five years though 2023-24, to $47.5 billion.

The recent surge to record levels of construction activity in the Multi-Unit Apartment and Townhouse Construction industry has meant that new apartment stock has exceeded immediate housing requirements. This record activity has increased overall vacancy rates in many major markets, in particular Melbourne and Brisbane, which IBISWorld expects will delay the commencement of new developments throughout 2019-20, therefore increasing competition.

Changing housing preferences have driven demand for industry services. These preferences have shifted towards high-density dwellings that yield lifestyle benefits compared to traditional suburban house and land packages. These benefits include closer proximity to transport and urban amenities at a lower cost than traditional dwellings. However, investors, rather than owner-occupiers, have driven much of the growth in high-density, inner city building construction, which has contributed to oversupply conditions. Strong population growth and historically low interest rates have also driven demand for new housing in Australia. However, additions to inner-city apartment stock have occurred on a massive scale and will take time for prevailing housing demand to absorb.

“Obstacles to foreign investment will constrain industry revenue growth over the next five years,” says Mr Kelly.

Foreign investment in the local real estate market will continue to influence demand for apartment construction over the period. The big four banks tightening mortgage lending to foreign residents and several state governments imposing stamp duty surcharges are forecast to temper foreign investment in real estate over the next five years. In addition, moves by the Chinese government to restrict the amount of money its citizens can move offshore are also likely to limit foreign investment over the period.

Overall, firms in the Multi-Unit Apartment and Townhouse Construction industry are expected to experience sluggish growth over the next five years, due to an oversupply of housing dwellings relative to residential demand.

Industries mentioned in this report:

Multi-Unit Apartment and Townhouse Construction