survey of industry conditions report - september 2014 qtr

Welcome to the September 2014 quarter edition of Master Builders’ Survey of Industry Conditions, a report on current conditions and business

sentiment in the building and construction industry.

EDITION 20 – SEPTEMBER 2014 QUARTER

Master Builders Survey of Industry

Conditions

Survey of Industry Conditions (Edition 20 – September 2014) Master Builders Page 1

Economic outlookBusiness confi dence in the Queensland economy and the building industry moved up over the September2014 quarter, recovering the ground lost over the previous quarter.

Queensland outlook 12 month economic outlook

September 2014 quarter

Queensland

economy

Queensland

building industry

Stronger 48% 54%

Stable 41% 36%

Weaker 11% 10%

Index level 60.2 62.5

Improving condition

Weakening condition

This is the fi rst positive move since the confi dence boost that came from the 2013 federal election. It refl ects a more stable environment where the Reserve Bank of Australia has continued to hold the offi cialcash rate at a low level and employment growth has been moderate.

While for many regions of Queensland the reality of the end of the resources boom continues to be felt, itis reassuring that confi dence appears to be levelling at a relatively high point.

Conditions in the residential and commercial sectorsRefl ecting the positive outlook, residential and commercial sector conditions continued to improveduring the September quarter. The residential sector crossed into positive territory for the fi rst time in thefi ve year history of the survey. Despite an improvement in the commercial sector, conditions remained very challenging.

Looking forward to the December quarter, conditions in both sectors are expected to surge forward into positive territory.

Queensland building industry conditions Residential sector conditions

Jun 2014 Sep 2014 Dec 2014

Stronger 31% 36% 43%Stable 37% 37% 50%Weaker 32% 27% 7%Index level 49.1 53.0 59.6

Commercial sector conditions


Improving condition

Weakening condition

Master Builders Survey of Industry Conditions (Edition 20 – September 2014)

Business performance Turnover

Jun 2014 Sep 2014 Dec 2014


Profi tability


Work in progress Average contract price

Encouragingly, this is expected to improve further over the coming quarter, helped by consumerconfi dence. This fl owed through to display centre traffi c, which moved up over the quarter from 47.3 to49.7. It is expected to improve further, and even return to positive territory by the end of the December quarter.

Turnover and profitabilityTurnover dropped away slightly but remained in positive territory in the September quarter. Profi tabilitymoved down to an index of 48.7, which is just below satisfactory.

Both business performance benchmarks are expected to move forward signifi cantly by the end of December 2014. More importantly, the number of businesses reporting weaker turnover and profi tabilityis expected to halve over a six-month period from June to December.

business activityThe level of business activity held steady over the September quarter. As with last quarter, many businesses (39%) are reporting a stronger level of work in progress. The majority of respondents (59%)reported that average contract prices remained the same.

There is little evidence of upward pressure on prices as the industry continues to be driven by strong competition for available work and budget-conscious consumers.

Improving condition

Weakening condition


Input costs – wages and materialsMaterial costs inched up over the September quarter and are forecast to maintain this level through to December. Average wages rose slightly, with two-thirds of businesses expecting these to hold steady through to the next quarter.

Input costs Average wages

Jun 2014 Sep 2014 Dec 2014


Average wages


Costs increasing

Costs decreasing

Employment levels and skills shortagesEmployment levels improved over the September 2014 quarter, and while the attrition rate is still high (21%of businesses reported a reduction in the size of their workforce), it has improved over the past three months.

The Australian Bureau of Statistics is also recording improved construction employment with a 1.7% growth in total construction employment reported in their August 2014 Labour Force data release.

The demand for apprentices weakened slightly during the September quarter, which indicates that manybusinesses are still not confi dent enough in the long-term prospects to take on this signifi cant commitment.

Employment levels Employment

Jun 2014 Sep 2014 Dec 2014


Apprentice levels


Looking forward, the majority of businesses expect their staffi ng and apprentice levels to improve overthe next three months. As in previous quarters, very few businesses are reporting serious diffi culties in recruiting and retaining suitably qualifi ed employees and subcontractors.

Rising condition

Falling condition


Business constraintsThe most critical constraint on business growth in the September quarter was once again the lacklustrelevel of demand. This has been the biggest drag on the construction industry since the September 2011quarter as a result of a cooling in mining investment, weak confi dence, fears about job security andtroubled government fi nances. Encouragingly, the magnitude of the constraint has been falling.

Labour costs has moved up as a constraint. It is expected to pose a problem as demand continues to pick up, but will be dictated in a large part by the labour needs of the resource sector.

Planning approval processes increased as a constraint despite the government’s reform process being well advanced. It is hoped that this will improve once the new planning legislation is adopted in 2015.In the meantime, indications are that the time taken to bring land to the market has increased which is causing frustration amongst builders and developers.

Business constraints

Housing affordability

and house prices remained steady in many regions of the state. This trend is expected to continue.

New housing continues to be relatively expensive, with 71% of respondents identifying aff ordability ashaving a negative impact on new housing demand.

Impact of aff ordability on new housing demand Outlook for housing aff ordability


Regional summaryFor the most part, the trends of the previous quarter continued in September. The south east corner continues to lead the way, with the Sunshine Coast and Gold Coast regions being the standoutperformers. Far North Queensland had a signifi cant surge forward off a low base, while the resourceregions of Mackay & Whitsunday and Central Queensland continued to struggle.

The key constraints across most regions were once again the level of demand, planning approval processes, and infrastructure charges.

Labour costs is an area of concern in regions with a less fl exible labour market, dominated by theresource sector. There are signs, however, that the labour market is already beginning to respond to the downturn, moving to the new growth areas such as the Sunshine Coast. Availability of land is growing as a concern for more regions as land supply is slow to respond to the increased construction demand.

Despite the challenges, respondents from across much of the state retain a positive outlook for the future.

RegionBuilding industry outlook

Turnover Profi t EmploymentAverage

wagesCapital

expenditureLevel of

work

Brisbane 67.4 53.8 50.4 50.0 51.1 48.3 50.7Gold Coast 68.9 50.6 48.0 49.3 52.3 54.4 51.3Sunshine Coast 67.9 54.3 51.8 49.4 49.3 46.8 48.2Darling Downs andSouth West Queensland

58.6 54.8 50.0 49.1 53.6 53.3 49.2

Burnett Wide Bay 55.2 42.7 41.7 45.2 50.0 42.4 32.6Central Queensland 45.2 45.0 43.0 42.7 50.0 46.9 30.0Mackay 46.0 45.0 44.0 43.8 49.0 38.0 43.8North Queensland 48.8 46.1 46.1 47.2 55.6 54.2 44.4Far North Queensland 71.4 53.6 52.7 48.1 51.0 49.1 43.8Queensland 62.5 51.3 48.7 48.3 51.2 48.5 46.6


Br

isba

ne

Business confi dence in the building and construction industry remained high, recoveringthe small loss made in the previous quarter.

This confi dence is well-founded, with the trading conditions for the residential sector jumping aheadover the quarter. While the commercial sector remained comfortably within positive territory,it did lose some of the ground made over the previous quarter. Further signifi cant improvementis expected over the next quarter.

Trading conditions

Turnover and profi tability moderated but are expected to surge forward in the three months toDecember 2014.

Business performance

Employment levels in the industry improved slightly over the three months to September 2014. The majority of businesses (55%) are still planning to hold their employment level steady, while asmaller number (19%) are considering furtherreductions. Current levels of apprenticeships areexpected to be maintained.

Given the relatively weak state of the industry and soft employment conditions across Queensland, wage pressures held steady in the Septemberquarter but remained in growth territory. This is the sixth quarter in a row that the Average WagesIndex has been in growth territory, and the index is

forecast to push higher over the next three months.This is stoking concerns that there will be a wagesbreakout as trading conditions in the region returnto the longer-term average.

As with the last quarter, very few businessesare reporting serious diffi culties in recruitingand retaining suitably qualifi ed employees andsubcontractors.

The most critical constraint on business growthin the September quarter was once again thelacklustre level of demand.

The other key constraint on business was labour costs. As noted above, wage pressures continuedin the September quarter despite the relativelyweak state of the industry and soft employmentconditions. This is stoking concerns there will be awages breakout as trading conditions in the regionreturn to the longer-term average.

Planning approval processes and infrastructurecharges continue to act as signifi cant constraintson business. The Queensland Governmentcontinues to take action to address theseconstraints and we are confi dent that this will helpto reduce the importance of these constraints over time.

Brisbane


go

ld c

oa

st

Business confi dence in the building and construction industry held steady during theSeptember quarter, maintaining the high levels achieved in the previous three quarters.

This confi dence is well-founded, with the trading conditions for the residential sector moving into positive territory. The commercial sector continues to struggle, losing the ground made over the previous quarter. Signifi cant improvement is expected for both sectors over the next quarter.

Trading conditions

Both turnover and profi tability dropped awayslightly. This is expected to be a temporary condition with strong expectations for the futurethat are backed up by impressive building approval data.


Employment levels held steady over the September quarter but still remain inside negative territory. The attrition rate remained worryingly high, with22% of businesses reporting a reduction in the sizeof their workforce.


Wage levels are coming under pressure on the GoldCoast with 28% of businesses reporting an increaseover the September quarter. This is expected tocontinue into the next quarter.

Once again, the most critical constraint on businessgrowth in the September quarter was the lacklustrelevel of demand. As in previous quarters, weak confi dence, fears about job security and householdfi nances and troubled government fi nancescontinued to challenge the construction industryin the region.

The next most critical constraint on businessgrowth in the region was infrastructure charges,along with planning approval processes. TheQueensland Government continues to take action to address these constraints and we are confi dentthat this will help to reduce the importance of these constraints over time.

Another key constraint on business was labourcosts. As noted above, wage pressures on the GoldCoast grew over the September quarter despitesoft employment conditions.

Gold coast


sun

shin

e co

ast

Business confi dence in the building and construction industry remained at a high levelduring the September 2014 quarter. The region has now enjoyed a strong level of confi dence for a full12 months.

This confi dence is well-founded, with the trading conditions for the residential sector remaining wellwithin positive territory, despite losing some of the gain made in the previous quarter. The commercialsector, while still positive, experienced a moresignifi cant pull back. This is expected to turnaround next quarter with both sectors anticipating improved conditions.

Trading conditions

Turnover and profi tability remained comfortably within positive territory. As a further signof confi dence in the region, both businessperformance benchmarks are expected to improve over the December quarter.


Employment levels in the industry improved slightly over the three months to September 2014, with nearly a third of businesses (28%) indicating that they are now in a position to expand theirworkforce.


Wage levels are coming under pressure on theSunshine Coast with 29% of businesses reportingan increase over the September quarter. This is expected to continue into the next quarter.

The most critical constraint on business growthin the September quarter was once again thelacklustre level of demand. This constraint iscompounded by the lack of available land to accommodate new construction.

Labour costs is another important constraint. As noted above, wage pressures on the Sunshine Coast grew over the September quarter despitesoft employment conditions.

The next most critical constraint on businessgrowth in the region was planning approvalprocesses, along with infrastructure charges. TheQueensland Government continues to take action to address these constraints and we are confi dentthat this will help to reduce the importance of these constraints over time.

sunshine coast


Da

rlin

g D

ow

ns &

Sou

th w

est qu

eensla

nd

Confi dence in the building and construction industry dropped away again during the September 2014 quarter but remained within positive territory.

While still strong, trading conditions for both theresidential and commercial sectors eased off at the same time as Toowoomba Regional Council’s infrastructure charges concession came to an end.

The expectations for the future are also muted, making the challenge for the next three months tomaintain the current levels.

Trading conditions

Turnover and profi t held steady over the quarterand are expected to improve as we move towardsthe end of the year.


Employment levels held steady, with 82% anticipating that they will be able to retain their existing workforce.

Even in this new subdued climate, 29% of respondents are still experiencing wage growth pressure. It is anticipated that this pressure willincrease over time.

Encouragingly, the majority of respondents (65%)now expect to maintain or increase their current apprentice levels.


constraint on business growth in the region waslabour costs.

The next most critical constraint on businessgrowth in the September quarter was once againthe lacklustre level of demand. As in previous quarters, weak confi dence, fears about job securityand household fi nances and troubled governmentfi nances continued to challenge the constructionindustry in the region.

Planning approval processes is another importantconstraint. The Queensland Government continuesto take action to address this constraint and we are confi dent that this will help to reduce the importance of these constraints over time.

Darling Downs & South west queensland


bu

rn

ett wid

e bay

Business confi dence in the building and construction industry held steady at high levelduring the September 2014 quarter.

The actual performance of the residential and commercial sectors was more mixed, with theresidential sector still in negative territory anddropping further (45.7). The commercial sectorsurged forward strongly, fi nishing well within positive territory (57.7).

Looking forward, the residential sector is expectedto improve over the coming three months, while the commercial sector is not expected to maintainthis quarter’s gain.

Trading conditions

Turnover and profi tability fell sharply, losingmuch of the gain from the previous quarter. Disappointingly, indices for both turnover andprofi t are now back within negative territory, though this is expected to improve over the nextthree months.


Employment prospects in the industry improvedover the three months to September, with themajority of businesses (76%) now expectingto hold their current staffi ng levels steady.

Unfortunately this was not matched withapprenticeship employment, where there was a signifi cant increase (up to 29%) of respondentsreporting weaker demand for apprentices.

As with the last quarter, very few businessesare reporting serious diffi culties in recruitingand retaining suitably qualifi ed employees andsubcontractors. This is refl ected in the wage growth pressure which held steady over the quarter.

The most critical constraint on business growthin the September quarter was once again thelacklustre level of demand.

As employment levels improved, labour costsmoved up to be the second most critical constraint. There is evidence however, that the market is already adjusting to the new levels of growth.Trade contractors are beginning to move into theregion to take up work and the shortage of certainin-demand trades like carpenters, painters and tilers is already easing. Labour costs are expectedto ease into the future.

Planning approval process continues to challenge Burnett Wide Bay business. The QueenslandGovernment continues to take action to address this constraint and we are confi dent that this will help to reduce the importance of these constraintsover time.

Burnett wide bay


Cen

tra

l Qu

eensla

nd

Business confi dence in the building and construction industry dropped away again in theSeptember quarter, returning to negative territory for the fi rst time since the GFC.

This drop in confi dence comes in spite of a strong upward swing in trading conditions.While still at low levels, both the residential andcommercial sectors showed a strong improvement.Encouragingly, the residential sector is expected toimprove further over the coming quarter and thecommercial sector should be able to hold onto thegains already made.

Trading conditions

These results were supported by an improvement in both turnover and profi tability, whichwhileremaining in negative territory, moved forward over the quarter. This performance is better thanexpected, given the continued retraction of theresources sector which has in turn led to muted employment and consumer sentiment.

Both business performance benchmarks are expected to improve over the December quarter.


As expected, given the weak trading conditions,employment levels remained soft. Encouragingly, fewer respondents are reporting reductions inemployment levels which is expected to continueinto the coming quarter.

Consistent with the softer employment conditions there was little movement on wages. This isexpected to continue into the next quarter,although wage expectations are still being led bythe resource sector. Even with unemployment inthe region above the state average, employers are reporting that it is hard to fi ll vacancies at realisticwage levels.

The most critical constraint on Central Queenslandbusiness growth in the September quarter wasonce again the lacklustre level of demand.

Also of concern is the availability and cost of fi nance. The region is dealing with the commonscenario of valuers, representing the mortgagelender, not providing values that meet the costof the house land package. In these cases, unlessthe client is in a position to fi nance the diff erencedirectly, the contract does not proceed.

While employment levels remain weak, labour costs is the third most critical constraint, with wageexpectations still being led by the resource sector.

central queensland


ma

ck

ay &

wh

itsun

day

Business confi dence in the building and construction industry held steady over the September 2014 quarter, remaining in negative territory. Optimism in the region has been tempered by the continued slowdown inresources-related activity.

Trading conditions for the commercial sectorimproved, while the residential sector droppedaway again. Both indices have now completed two years in negative territory. Encouragingly,both sectors are expected to improve over the December quarter, perhaps even making it back into positive territory.

Trading conditions

Turnover held steady and profi tability improvedduring the September quarter, even in the face of challenging business conditions. Both businessperformance benchmarks are also expected to improve further over the next quarter.


Employment levels in the region held steady overthe September 2014 quarter, with the majority(58%) now reporting that they expect to maintain their current staffi ng levels.

Apprentice employment was subjected toincreased pressure as businesses are unwilling to make long-term commitments until theuncertainty surrounding the future level of demand in the region clears.

Very few businesses are reporting seriousdiffi culties in recruiting and retaining suitablyqualifi ed employees and subcontractors. This isrefl ected in the wage growth pressure which heldsteady over the quarter.

The most important constraint on business growthin the September 2014 quarter was the lacklustre level of demand.

Another important constraint on business growthin the region is planning approval processes andthe related constraint of infrastructure charges. TheQueensland Government continues to take action to address this and we are confi dent that this willhelp to reduce the importance of it over time.

While employment levels remain weak, labour costs is the third most critical constraint with wageexpectations still being led by the resource sector.Even with unemployment in the region above thestate average, employers are reporting that it ishard to fi ll vacancies at realistic wage levels.

mackay & Whitsunday


no

rth

Qu

eensla

nd

Business confi dence in the building and construction industry held steady during theSeptember 2014 quarter, maintaining a positive outlook.

This confi dence is underpinned by a strong improvement in the residential sector trading conditions. While more still needs to be done toreturn to positive territory, it is a welcome resultfor a sector that has been struggling for some time.Unfortunately this result was not matched in thecommercial sector which failed to hold on to thegains of the previous quarter.

Both sectors remain optimistic however, with astrong improvement expected over the Decemberquarter and possibly even a return to positiveterritory.

Trading conditions

Turnover and profi tability both suff ered a smalldrop over the quarter but are expected to poststrong results over the next three months.


Employment levels held steady over the quarter.The majority of respondents (61%) now expectto maintain their current employment levels. The outlook for apprenticeships has also improved strongly with 40% of respondents expecting toincrease their apprentice levels. This is a vote of confi dence in the long-term health of the industry.

Wage levels strengthened once again overthe quarter with nearly a third of respondentsreporting stronger wage levels. At the same time,businesses are not yet reporting any diffi cultiesin recruiting and retaining suitably qualifi ed employees and subcontractors.

Consistent with the state-wide results, the mostcritical constraint on North Queensland businessgrowth in the September 2014 quarter was thelacklustre level of demand.

While labour costs is the next most criticalconstraint this is expected to be kept in check.There is evidence that the market is alreadyadjusting to the new levels of growth. Tradecontractors are beginning to move into the region to take up work and the supply of in-demandtrades like site managers, electricians and tilers isincreasing.

Another important constraint on business growthin the region is infrastructure charges. TheQueensland Government continues to take action to address this and we are confi dent that this willhelp to reduce the importance of it over time.

north queensland


far

no

rth

Qu

eensla

nd

Business confi dence in the building and construction industry surged forward slightly during the September quarter reaching the highest level in the history of the survey.

This confi dence is supported by a marked improvement in trading conditions for both the residential and commercial sectors. Both sectors are even more optimistic for the future, expectingtrading conditions to return to positive territory byDecember 2014.

Trading conditions

Turnover and profi tability also posted a strongresult, returning to positive territory for the fi rsttime in two years. Both business performancebenchmarks are expected to improve still further inthe December quarter.


Employment levels in the industry were fairlystable over the three months to September 2014.

Apprenticeship levels held steady over the quarterwith three-quarters of respondents maintainingapprenticeships at the same level. A majority of businesses expect this to continue into the nextquarter.

Despite the strong growth, wage levels were steady across the region and should continue to remain so over the next quarter to December. Businessesare not reporting any diffi culties in recruitingand retaining suitably qualifi ed employees andsubcontractors.

Consistent with the state-wide results, the mostcritical constraint on business growth in Far NorthQueensland over the September quarter was onceagain the lacklustre level of demand.

Labour costs is another key constraint in the region. While they are not yet increasing across the board, they are a signifi cant input to theconstruction process and any movement is keenlyfelt by an industry experiencing constraineddemand.

The availability of land has emerged as a signifi cantconstraint. It remains to be seen whether land canbe supplied to meet this growing demand.

far north queensland

MB-

1916

6 1

0-14

About the surveyThis report is based on a quarterly survey of businesses in the building and construction industry undertaken by Master Builders.

The analysis in this report uses the original survey data and indexes to assess the views of survey respondents regarding current and future conditions in the industry.

The indexes in the report are calculated using the following formula:

Index = Σ proportion of respondents*((n-i)/(n-1))where n = the number of response options for a given question

i = the number of a particular response option

The possible range of the index is 0 to 100. The index level would be zero if every respondent selected the weakest response option for the relevant question, while it would be 100 if every respondent selected the strongest response option.

For most of the indexes, an index level of 50 indicates that conditions are satisfactory and an index level of over 50 indicates that conditions are more than satisfactory.

Conversely, an index level of less than 50 indicates that conditions are less than satisfactory. A more detailed guide to interpreting the index results is provided below.

Very poor 0 – 19.99Poor 20 – 49.99Satisfactory 50 – 69.99Good 70 – 84.99Very good 85 – 100

The interpretation of the business constraints and skills shortage indexes is slightly diff erent and a detailed guide to interpreting these index results is provided below:

No constraint/shortage 0 – 29.99Slight constraint/shortage 30 – 39.99Moderate constraint/shortage 40 – 59.99Major constraint/shortage 60 – 74.99Critical constraint/shortage 75 – 100

Master Builders Head Offi ce

417 Wickham Terrace, Brisbane Queensland 4000p 3225 6444 | f 3225 6545 | f e [email protected]

masterbuilders.asn.au

survey of industry conditions report - september 2014 qtr

Documents

index level

current conditions

positive territory

previous quarter

september2014 quarter

coming quarter

positive outlook

construction industry