Conditions in the building and construction industry in Australia are now worse than they were at the depths of the Global Financial Crisis and some builders and contractors are now tendering for work with virtually no profit margin at all, the latest survey results show.
Results from the September quarter Master Builders National Survey of Building and Construction indicates that industry activity and sentiment have now fallen to levels below the lowest point experienced during the GFC.
In the survey, readings for respondents’ own levels of business activity, profitability and sales contracts all stood at ten year lows.
The survey results reinforce the negative picture indicated by data such as the Performance of Construction Index, which shows building conditions have deteriorated each month for more than two years, as have building approvals and new home sales, which are now at 15-year lows.
Master Builders Australia chief economist Peter Jones says the current situation in the industry is not sustainable, and that the survey results are particularly disappointing in light of Reserve Bank interest rate cuts totalling 1.5 percentage points since the last round of monetary easing began late last year.
“Profits, sales, display centre traffic, enquiries and work on the books all remain dangerously low,” he warns. “Increasingly, builders and contractors are tendering for projects with little to no margin, which is not sustainable for either the contractor or the client.”
Jones also says the survey results provide further evidence that the impact of weak building conditions is spreading to the sector’s workforce.
The survey asked builders and contractors about their intentions regarding the likely level of employees and sub-contractors over the next six months. The results produced an index of 42.3, with any figure below 50 suggesting a reduction in the industry’s workforce.
This reinforces the latest employment figures from the ABS, which suggest the industry lost 70,000 jobs in the year to August, with around 35,000 jobs disappearing in the three months to August alone.
“With key forward indicators trending down, it is no surprise to hear builders reducing their operations, including staffing levels,” Jones says, adding that the industry hopes the latest rate cut in October serves as the catalyst to boost confidence in a way previous cuts have failed to do.
The survey results follow the latest economic update from the International Monetary Fund, in which the IMF projected an increasing negative outlook for the world economy and a moderate outlook for the Australian economy.