Residential construction is vital to the Economy: NHFIC
Residential construction plays a vital role in supporting jobs both on and off building sites across Australia.
It has the second largest economic multiplier of the 114 industries that make up the Australian economy, according to new analysis.
Nine jobs are supported across the economy for every $1 million spent on residential construction, the report, Building Jobs: How Residential Construction Drives the Economy, found.
The data came from the National Housing Finance and Investment Corporation’s (NHFIC) research unit which found residential construction contributes around five per cent to annual gross domestic product (GDP) accounting for about 134,000 jobs.
Of the total of nine jobs, around four can be considered on-site jobs, while the remaining five can be considered off-site, people who supply materials and other off-site services.
The average cost of building a home in Australia is around $320,000.
Commenting on the research, NHFIC CEO Nathan Dal Bon said this meant that every new home built generated an average of three jobs throughout a range of industries, based on the average dwelling construction cost.
“Understanding how residential construction activity may affect jobs and flow through to the broader economy is increasingly important and timely, given the impact of COVID-19,” Mr Dal Bon said.
It comes at a time when data shows substantial job losses have already occurred in the construction industry following the onset of COVID-19.
Recent ABS payroll data showed that employment fell by 5.8 percent between March and May.
The NHFIC’s research unit, established this year by the Federal Government, has dual roles. It is to undertake independent housing related research and also to monitor housing demand, supply and affordability across Australia.
The Building Jobs report, which draws on the most recent available data from the 2017-18 Australian Bureau of Statistics (ABS) input-output tables released last month, found that $1 million of output in residential construction supports around $2.9 million of industry output and consumption across the broader economy.
Relative to other industries, residential construction activity has strong economy spillovers in terms of economic output and jobs, particularly when there is spare capacity.
The employment impact on construction services such as plumbing, electrical, bricklaying and carpentry is almost four times that of any other industry connected to the residential construction industry, the report found.
Recent insights from internal discussions within the Reserve Bank of Australia highlighted its such a vitally important industry in the Australian economy in terms of its contribution to jobs and economic growth.
Demand for new housing remains weak.
Builders of detached housing expect the recent weak demand to weigh on construction activity and cash flow beyond their current pipeline of around four to nine months.
The pipeline of residential construction work in the major east coast markets is at the longer end of this range, the RBA noted.
Builders and developers report that domestic banks and non‐bank financiers have become more conservative in their lending.
It assumed 20 per cent of the labour force in the construction sector will be unable to work at some point in the June and September quarters.
The RBA economist Richard Evans anticipated the negative confidence shock higher than that experienced in the global financial crisis.
There was a late April RBA memo indicating demand for new housing had declined substantially since mid-March and was expected to decrease further.
"There have been sharp falls in sales, enquiries and foot traffic following the introduction of stricter containment measures," it noted.
There were increases in contract cancellation rates, particularly for new detached houses and greenfield land, so financial risks had increased for builders and developer as a result of the decline in demand for new housing.