Amid a challenging global economic environment and the biggest inflation shock in over 30 years, the Australian construction industry has gone through a difficult adjustment over the past year.
- Indeed, the surge in building cost inflation has been the most challenging concern. Specifically, unanticipated cost inflation for builders committed to fixed-cost contracts had the most dramatic impacts on their firm-specific profitability, even if they were able to renegotiate their project costs.
- Altogether, we have seen a big profit squeeze in the construction sector in 2022 and 2023. Higher rates, higher construction wages, higher building material costs and even wetter-than-usual weather conditions have all added to costs and delays within the sector.
- Coming off the back of timely JobKeeper and other government support payments during the COVID lockdowns in 2020 and 2021, we have seen a clear slowing in the construction sector profitability, which has eased from a peak 11% of sales in 2021, back to the long-term average of 9% of sales in early 2023. However, it is important to
put this into longer term perspective, as building sector profitability has only eased back to their 20-year averages in 2023.