Construction hinders economic growth

The construction industry emerged as a significant drag on Australia’s economic growth in the March 2024 quarter, according to the latest recently released GDP data.

Construction output fell sharply by 2.6% in the first three months of the year, led by declines in all major industrial sectors.

Construction services fell by 2.3 percent, residential construction by 3.1 percent and heavy and engineering construction by 2.6 percent.

Overall, the Australian economy recorded a modest 0.1 per cent GDP growth this quarter, marking the worst economic performance in almost two years.

Denita Wawn, CEO of Master Builders Australia, highlighted the key role the construction industry plays in driving broader economic growth.

“When the construction industry is strong, the economy is strong,” she said.

“We know that for every dollar invested in the industry, three dollars goes back into the broader economy.”

Wawn attributed the construction slump to a continuing decline in building permits across all sectors, exacerbated by a drastic increase in construction times for new homes and a 40% increase in costs compared to pre-pandemic levels.

“This comes at a time when an increasing housing supply is needed to reduce inflation in the rental market,” Wawn said.

“We cannot turn a blind eye to the crucial role of productivity in growing our economy and fighting inflation.”

To address the housing crisis and boost economic growth, Wawn called for urgent action by federal, state and territory governments.

She advocated accelerating planning reforms, finalizing the migration review, introducing new incentives to expand the workforce and establishing an industry regulator with real enforcement powers.

“If we are to reverse decades of underdevelopment and solve the housing crisis, we must change the economic environment to encourage investment in all sectors: residential, civil and commercial,” Wawn emphasized.

This morning, the Treasurer and Housing Minister introduced a policy lever to encourage investment in build-to-rent housing, which Wawn said could play a role in lowering rent inflation.

While Master Builders is still analyzing the details of the legislation, Wawn expressed support for the principle of diversifying the housing supply in the economy.

As the construction industry faces challenges, its performance will be closely watched as a key indicator of Australia’s economic health and the effectiveness of government policy in tackling the housing crisis and promoting sustainable growth.