Economic Analysis of Australian Construction Industry

Australian Housing Industry 1
Economic analysis of the Australian Construction Industry
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Australian Housing Industry 2
Table of Contents
1.0. Introduction.................................................................................................................................3
2.0. Industry background.................................................................................................................3
3.0. The market structure of the industry....................................................................................4
3.1. The characteristics of the industry.........................................................................................4
3.2. The market leaders in the industry........................................................................................4
4.0. Demand, supply and Elasticity in the housing industry.................................................5
4.1. Factors that influence demand of housing...........................................................................5
4.2. Factors that influence supply of housing..............................................................................5
4.3. Demand elasticity for the housing industry...........................................................................6
5.0. Impacts of an event on the industry..........................................................................................6
5.1. Fall in house prices..................................................................................................................6
5.2. Fall in price and the market demand and supply.................................................................6
5.3. Effect of the event on the market price and quantity..........................................................6
6.0. Conclusion...................................................................................................................................7
7.0. List of References......................................................................................................................8

Australian Housing Industry 3
Economic analysis of the Australian Construction Industry
1.0. Introduction
The housing/ construction industry is a significant contributor to the Australian Gross
Domestic Product (GDP). The performance of the industry is influenced by numerous market/
economic factors. Falling rates of interests and a rising population have positively contributed
to the growth in the industry.
On the other hand, decreasing affordability of mortgages have forced consumers to shift their
preferences towards apartments. The increasing trend of foreign investors exiting the market
because high construction costs also reduce the demand for houses. These factors cause a
fluctuation in the performance of the industry (Basil, 2019). This paper examines the
performance of the Australian housing industry from an economic perspective. The paper is
divided into several sections. The introductory section examines the industry background. The
second section evaluates the industry's market structure. The third section discusses factors
that influence the demand, supply, and elasticity in the market. The fourth section investigates
a critical event that has impacted the performance of the industry in the recent past.
2.0. Industry background
The construction industry is rated among the most significant contributors to Australian
economic growth. The industry grew by 9.3% in 2018. It is expected that the rapid growth of
the industry will increase the industry's share of the GDP, increase revenue and create more
employment opportunities (Smith, 2019). Several factors influence the performance of the
industry.
a) The 1.6% annual population growth rate increases the demand for new residential and
commercial houses. The population is caused by a 62% overseas migration and 38%
natural births.
b) The demand for new constructions is high in urban areas. Melbourne and Sydney
house 40% of the nation's population.
c) The construction industry contributes to 8% which is equivalent to $134.2 billion of
Australian GDP. The investment in the industry is expected to grow in value,
productivity, and size (McGowan, 2019).
d) The number of active projects increased by 2% in 2018 and is expected to continue
growing in the next five years. The growth is fuelled by effective, efficient and
innovative technology.
e) The employment growth rate grows by 3% annually. Approximately 1.1 million people
are employed in Australia in a different capacity. Seventy-four thousand seven hundred
twenty-five people are employed on a full-time basis.
f) The industry has invented a construction software which has helps to save over $25
billion annually.
g) The demand for commercial houses is expected to grow by 9.3% per annum in the
next five years. The annual demand for new business constructions stands at 44,310
nationally with a higher demand in Sydney and Melbourne.
h) The construction industry is rated among the largest contributors of the Australian
economic growth. The industry grew by 9.3% in 2018. It is expected that the rapid
growth of the industry will increase the industry’s share of the GDP, increase revenue
and create more employment opportunities. The performance of the industry is
influenced by several factors (Cartwright, 2018).