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Building and Construction Industry Forecasts Victoria – Commentary January 2019 Victoria – Commentary 1 TOUGHER CONDITIONS ON THE WAY FOR VICTORIA? ictoria’s economy has been the star performer of recent years, with strong gains for jobs growth and population over recent years being underpinned by healthy conditions across a wide spectrum of the state economy. Over the year to October 2018, the state economy created about 95,000 new jobs which represented an increase of some 4.5% on the already respectable situation of 12 months earlier. Many of the new jobs in Victoria have been filled both by previously unemployed individuals returning to work: the unemployment rate has fallen from 5.8% to 4.5% over the past year. The big story of recent years for Victoria has been the remarkable gains in population which accounts for the bulk of employment jobs – those of working age have been flocking to the state both from other parts of Australia and the rest of the world to take advantage of its favourable labour market conditions. Victoria’s population grew by 2.2% over the year to June 2018 – equivalent to 138,000 additional residents. Inward migration accounted for over 98,000 of the population increases. A rising population is the most important driver of demand for new home building activity and residential building in Victoria has been a big beneficiary of this linkage over recent years. Total dwelling starts peaked at over 75,000 during the 2017/18 financial year, with apartment building playing a major role in delivering this outcome. The mood music for new home building has changed in light of tougher credit conditions following the commencement of the Royal Commission’s work. Melbourne house prices have also been falling since late 2017 and have notched up sizeable reductions – this makes the market for new home building much more difficult. New dwelling starts are projected to fall back by 8.6% during 2018/19 overall, with another decline of 7.8% forecast for 2019/20. Further reductions will bring new dwelling starts down to about 50,800 by 2022/23 – a reduction of some 33% from peak. Expect apartments to bear the brunt of this reduction. Non-residential building is having a good year and is expected to increase by some 16.8% overall during 2018/19. This is likely to represent something of a high water mark, however, and with activity anticipated to fall back by 26.8% by 2022/23 compared with the volume of activity during 2018/19. Some of the largest projects underway include the $1.5 billion Melbourne Quarter mixed-use development, the $1.2 billion Merrifield development and the Lyndhurst/Altona inland ports ($1.0 billion). Things are a bit more positive when it comes to engineering construction activity in Victoria. Major public transport works here have boosted activity in recent years and 2018/19 will mark the fourth consecutive year of growth (+6.7%) – completely bucking the national trend. Some of the strong gains of recent years in Victoria are expected to be given up over the period to 2022/23 with a 19.1% decline in activity projected for this period. The Melbourne Metro Rail Project is the biggest piece of action here ($10.9 billion), followed by the $6.7 billion West Gate Tunnel work and the $1.6 billion Dandenong Rail Corridor. V
