Despite lockdowns, the construction industry in Australia is in good shape. Will the end of government assistance lead to a bumpy road ahead?

Lockdowns and challenging news dominated many people’s lives in 2020. But, things are looking up, especially for residential construction in Australia. Buildxact’s Residential Construction Activity Report (H1 2021) data shows a positive trend in the industry based on the first half of 2021. Win rates for builders continue to show signs of stability, despite fluctuating demand.

Overall, the residential construction industry is rebounding from the pandemic. Despite lockdowns, builders showcased their agility and adapted. The government provided much-needed assistance to homeowners via the HomeBuilder Grant and enacted changes to stamp duty policies, which had a trickle-down effect on builders.

There was steady growth throughout Australia, and demand for custom home builders saw continued growth during the first three quarters of 2020. The average number of estimates even increased 6% from Q1 to Q3 2020. As expected, the industry saw a seasonal dip in December, resulting in a 24% decline in the average estimates per builder from November results. This trend recovered in February 2021 and peaked in March; however, average estimates per builder saw a 13% decline in April, in line with the end of the Government Home Builder Grants.

When one takes a closer look, it is clear some states suffered more significant impacts than others.

Victoria was the hardest-hit state in terms of lockdowns. Despite this, there are plenty of signs the residential construction industry continues its road to recovery. Demand for residential builders remains higher than pre-COVID-19 days. The number of estimates per builder for new builds and renovations is also trending higher. But, it’s not all positive news. The ongoing average number of estimates for new builds during the first half of 2021 is lower than its peak during Q2 and Q3 of 2020 — the height of lockdown.

The main story out of New South Wales is that demand for renovations remains below 2020 levels, meaning there are no signs of recovery. In Queensland, the demand for new builds remains strong. Builders are benefiting from increased demand and value for new builds, which has led them to enjoy a 27.3% increase in the average margin for new builds. And in Western Australia, despite reduced demand in the first half of 2021, it saw the most robust growth levels across the entire country. Builders there have increased their margins, and as a result, their profits.

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Buildxact’s Residential Construction Activity Report April-June 2020 shows that there is strong demand for custom-built home projects and renovations. Although competition in the sector has intensified, many small builders are winning new work, albeit at a slightly reduced average value per project. Margins are healthy.

One of the key observations from the first edition of this quarterly report is that the COVID-19 pandemic had no significant impact on small builders in the residential housing sector over the June quarter, according to the data.

David Murray, CEO of Buildxact said he expected a significant impact on the work being quoted and won by Buildxact’s builder customers when the COVID-19 crisis began. However, that has not happened. One possible reason is that people are spending more time at home and thinking more about undertaking renovations or knockdown rebuilds.
(Download the report here)
“Buildxact’s data indicates there has been a major increase in quoting activity by the small residential builder since the COVID-19 restrictions began in March. The volume of quotes by small builders has increased and margins are steady, which makes for a relatively upbeat outlook for the residential builder,” says Mr Murray.

“Our data shows that demand has not dropped off over the reporting period. Builders are still quoting work. The volume of quotes in June 2020 was up more than 25% (actual: 28%) compared to the volume of quotes in March 2020, and total quote values rose by 29% (June versus March). While our subscriber numbers have grown also during that period, it would not account for that much of an increase, which tells us there is still a lot of demand out there.”

Following the implementation of COVID-19 restrictions in mid-March, the total number of quotes fell in April. However, volumes picked up again in May and June to levels well above what they were in March. When comparing the April-June 2020 quarter to the same period in 2019, the average volume of quotes per builder has increased by 10.7%.

Over April-June 2020, small builders quoted on $4.01 billion worth of projects, compared to a total of $2.19 billion over the same three-month period in 2019—an increase of 83%. While growth in the Buildxact subscriber numbers contributed a little to this increase, the main driver of growth was increased demand.

“Demand is high, particularly for renovation projects. Builders are very busy quoting to secure a pipeline of projects to deliver, and with the average project over $150k, this work will run for many months.” says Mr Murray.

Leigh Wallis, Managing Director of Smith and Sons Renovations, a franchise of 86 small builders across Australia and New Zealand agrees.

“In mid-April, renovations inquiries took off exponentially. Obviously, some people are just tyre-kicking. But people are stuck at home and are looking at their four walls, wondering ‘What can we do to improve the home?’ The other a part of it is that some people may have had a go at renovations themselves and now need a tradie to fix up their mistakes. The other thing is that since COVID-19, people have got money that they may have intended to use on travel, but that’s now off the cards. They’re quite happy to spend that money on renovations,” he said.

“I think we have fared quite well during COVID-19 compared to other sectors. For the next three months, if inquiries keep going the way they are and we don’t get another resurgence of COVID-19, I think we should get through it,” Mr Wallis continued.

Assessing the impact of HomeBuilder

The federal government’s $25,000 HomeBuilder grant announced in early June has helped boost the number of quotes, with quotes up 11% between June and July.

The strong demand for renovations and custom-built homes continued over July 2020, with the total value of all work quoted growing to $1.62 billion. In February 2020, the value of all work quoted was $1.1 billion.

“So, over the course of COVID-19, we’ve gone from $1.1 billion to $1.62 billion—massive growth,” says Mr Murray. “We’ve not had that level of growth in the period previously.”

However, the grant is yet to have an impact on jobs won.

“Builders are telling me that they were very busy beforehand, and now they are quoting on projects with the government grant, but they haven’t necessarily started those projects yet,” says Mr Murray.

The second COVID-19 lockdown in Victoria is expected to have a minimal impact on small builders because the size and nature of the projects on which they work requires fewer than five people on site.

About the Report

Data from the Buildxact report is drawn from thousands of builders across Australia who use Buildxact’s job management and job estimating software.

Access the report here

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