Effects of Global Financial Crisis on Construction Industry in Australia

The report aims to present the effects of GFC on the construction industry in Australia. This report highlights both the positive and negative impacts of GFC on the Australian construction industry. The housing construction industry has improved after the GFC as its construction index rose by 2.9 points. On the other hand, the GFC has a negative impact on property prices, youth labour market, building construction supply chain, unemployment and availability of skilled manpower.

Davinder Saini
[COMPANY NAME] [Company address]
Topic - The effects of the global financial crisis on the
construction industry in Australia

Topic - The effects of the global financial crisis on the construction industry
in Australia
Executive Summary
The GFC (Global financial crisis) has a negative impact on the engineering construction and
house/office building industry in Australia. The report aims to present the effects of GFC on
the construction industry in Australia. This report highlights both the positive and negative
impacts of GFC on the Australian construction industry. The housing construction industry
has improved after the GFC as its construction index rose by 2.9 points. On the other hand,
the GFC has a negative impact on property prices, youth labour market, building construction
supply chain, unemployment and availability of skilled manpower. The report findings
revealed that the demand for construction, real estate, property, design and architecture
workers has fallen by 19.8% over the last year due to the downturn in the housing market
industry. Moreover, the rapid decline in house prices is a major area of concern because the
national price has fallen by 5.1% in 2018 which is more than the annual drop occurred in
2009 i.e. 4.6%. The demand for construction, real estate, property, design and architecture
workers has fallen by 19.8% over the last year due to the downturn in the housing market
industry. This report presented that employment has grown at a decent clip during 2012-2014
while the professional’s hiring has been reduced in 2018.
Contents
Executive Summary.............................................................................................................................1
Introduction.........................................................................................................................................1
Global financial crisis 2009.................................................................................................................2
Positive impacts of GFC on the construction industry in Australia................................................2
Negative Impacts of the Global Financial crisis on the Australian construction industry.............3
1. Decline property prices...........................................................................................................3
2. Youth labour market...............................................................................................................4
3. Skills shortage..........................................................................................................................6
4. Building construction supply chain........................................................................................7
5. Unemployment.........................................................................................................................8
Conclusion............................................................................................................................................9
References..........................................................................................................................................10
Appendix............................................................................................................................................12

Introduction
The Global Financial Crisis (GFC) can be defined as a structural flaw related to the financial
system. There are various factors/causes of GFCs such as housing price fluctuation, exchange
rate, trading partner growth, current accounts, global imbalance, credit tightening,
international reserves etc. which provides an idea about the impact of the global financial
crisis. Australian construction industry faced various problems during the occurrence of GFC
in 2009. As a consequence of GFC, the unemployment rate and shortage of skilled labour
have been increased rapidly. However, it was highly challenging for the Australian
construction industry to fulfil the demand of customers and complete large construction
projects on time due to the occurrence of the global financial crisis. It has been estimated that
an Australian construction industry would face a global economic crisis in 2019. The report
aims to critically examine the important and diverse economic issues which have been faced
by the construction industry in Australia in 2009. This report is going to discuss both positive
and negative impacts of GFC on the construction industry in Australia. This report is highly
significant as it presents the current construction market trends in context to the problems
faced by the industry during previous GFC.
Global financial crisis 2009
An Australia construction industry has been significantly contributed to the economic
outcome by providing business opportunities and employment (Torres-Machí et al., 2013).
House/office building and engineering construction are main activities performed by the
construction industry in Australia. Global financial crisis occurred in 2009 is one of the most
important economic events which adversely affected different business markets all across the
world. India, Japan, Australia, New Zealand, Canada, the UK, China, Spain are main
countries which adversely affected by the global financial crisis. It occurred in July 2007
when U.S. investors began to withdraw money from banking/financial organizations due to
lack of faith in the mortgage properties. In 2009, the construction industry was adversely
targeted by the financial crisis and unavailability of credits. It has been found that the
employment rate in the construction sector declined by 8.2% at the recession time (financial
crisis) in Australia (The Global Financial Crisis and regional Australia, 2009). Moreover, the
industry had registered its seventeenth consecutive month of declining employment at the end
of August 2009. As a result of the financial crisis, residential and commercial construction
has dropped significantly on the Gold Coast. Road and rail, housing, education and

community infrastructure are the main four components of NBESP (National Building
Economic Stimulus Plan) which adversely affect the construction sector at the time of the
global financial crisis. Excessive leverage, liquidity crunch situations, conflicts of interest,
taxes and subsidies are the main factors of the global financial crisis (Horhota, 2009). The
total merchandise trade in Australia decreased by 11.6% during the global financial crisis in
2009 (Huy, 2014). There is no doubt that the recession (Global Financial Crisis) officially
ended at the end of 2009 but the construction industry in Australia has struggled a lot to come
back to its pre-GFC level. According to the Australian Bureau of statistics data, the financial
global crisis would occur in 2019. In the following section, the impact of GFC (Global
Financial Crisis) on the Australian construction industry has been represented based on the
recent industry trends in a detailed manner:
Positive impacts of GFC on the construction industry in Australia
The GFC has put some positive impacts on the construction industry in Australia. At the time
of recession, the housing construction activity remains resilient. It has been observed that the
housing industry association performance of construction index rose by 2.9 points in the
July/August 2009 which showed the improvement in housing construction activity.
Moreover, it has been expected that the low-interest rates and population demands can
improve housing construction activity in an effective way. Moreover, residential construction
activity drives the economy of Australia after the ending of the global financial crisis (Kraal
and Yapa, 2012).
Negative Impacts of the Global Financial crisis on the Australian
construction industry
It has been estimated that the global financial crisis will 2019. In this report, the impact of the
global financial crisis occurred in 2009 has been investigated along with recent trends of the
Australian construction market.
1. Decline property prices
The decline in business investment and household consumption are signs of the emerging
financial crisis (Kraal and Yapa, 2012). The GFC occurred in 2009 has slow down the
economic growth of Australia as the overall housing construction has declined on the Gold
Coast. The findings of various researchers showed that falls in housing price are a sign of the
global financial crisis. In the current scenario, properly prices in Australia has been declining
continuously and it has been estimated that the global financial crisis will come soon.
According to the Australian Bureau of Statistics data, the house prices fell by 2.4% in the

capital cities of Australia in 2018. From the statistical data, it has been found that house price
declines were sharpest in Melbourne (2.4%) and Sydney (3.7%) (Pearson, 2019). Moreover,
the price reduction has also been observed in Gold Coast Capital cities (Grenfell, 2019). The
rapid decline in house prices is a major area of concern because the national price has fallen
by 5.1% in 2018 which is more than the annual drop occurred in 2009 i.e. 4.6%. In other
words, the recent investigation conducted by the Australian Bureau of Statistics showed that
construction price has been fallen more quickly as compared to the previous construction
market contraction. The overall property prices in the entire country have fallen more than
GCS. The impact of the global financial crisis has been heavily observed in Sydney and
Melbourne as compared to other areas in Australia as shown in the below-presented
screenshot. There are various factors which have fallen the property rates in Australia such as
poor affordability, a collapse in foreign demand, a surging supply of units, global financial
crisis, borrowers switching from interest only to interest loan, capital gain tax. Moreover, if
immigration levels have been cut sharply then these could be made worse.
Figure-1 decline property price (Pearson, 2019)

It has been estimated that Australian Property downturn would negatively affect the
Australian economy in a negative way (Lamberte, 2019). The housing construction cycle will
turn down again in Australia due to the direct detraction of national economy caused by the
global financial crisis. The increase in population growth and declines in average household
size negatively affect the inflation rate which has an impact on the construction industry.
2. Youth labour market
During the recession (global financial crisis), the unemployment rates for youths increase at a
highly rapid rate (Junankar, 2015). Various business industries like Retail trade,
manufacturing and construction are employed young workers to perform their business
operations. The wages of youth workers decreased adversely at the time of GFC which
results in increasing rate of unemployment (Al‐Malkawi and Pillai, 2013). The occurrence of
a global financial crisis decreases the supply of construction material and wages of workers in
a negative way. (Australian Workers’ Union, 2009) conducted a survey in order to capture
information about the impact of GFC on Australian workers. With the help of this survey, it
has been found that workers working in different segments including labour, regional
residents, blue collar workers, working families, outer metropolitan residents and others have
experienced problems related to reduction in pay, increased workload, loss of job and
reduction in working hours during global financial crisis in Australia. However, the GFC had
tightened the youth labour market in all segments (Moore and Mirzaei, 2014). The conducted
survey showed that many of the Australian workers especially construction workers were
inexperienced at the time of GFC which adversely affected their working (professional) lives.
As a result, they felt more stressed and discouraged. After the Global Financial Crisis, the
Federal Government took initiatives to manage an economic crisis that improves the
economic conditions of Australian workers belongs to all segments.
The finding of Junankar (2015) showed that manufacturing and construction industries have
been on declining trends in the current scenario. Presently, Retail and
accommodation/restaurant industry has been provided employment opportunities to both
young men and women in Australia to improve their economic status. As per the ABC labour
force release for January, the total employment growth for young people (15-24 years old) is
falling at a rapid rate from the last year (O'Loughlin, Humpel and Kendig, 2010). As per the
estimation of the Australian Bureau of statistics, the overall unemployment rate rose by
11.4% marginally in Australia (Onselen, 2019). The recent trends in job growth and decline
in context to different industries have been represented in the following section.

Figure-2 Australian job ad growth by industry (Scutt, 2019)
The above-represented figure shows an Australian job ad growth/decline by industry. The job
advertisements for professionals and workers have been fallen at a rapid rate in Australian
over the last year. It has been revealed that the demand of construction, real estate, property,
design and architecture workers has fallen by 19.8% over the last year due to a downturn in
the housing market industry (Scutt, 2019). Despite this, there are other nine professions
which have faced an annual decline of more than ten per cent in the last year as shown in the
above diagram.
3. Skills shortage
Australia has experienced sustained and endemic skills and workforce shortages over the
course of the last decade due to the global financial crisis which hit the construction industry
adversely (Pinnuck, 2011). The occurrence of the global financial crisis has given the
unevenness of labour market where the mobility of labour has been proven to be inadequate
and insufficient to meet the need of construction, infrastructure development and mining

sectors (McGrath-Champ, Rosewarne and Rittau, 2011). The shortage of skilled labour
around the world has been threatening the successful delivery of construction projects.
According to the international construction market survey conducted by Townsend and
Turner, 56% of the global construction market has experienced the problem of skills shortage
among Asia, South Africa, the UK, North America, Australia and Asia. Moreover, the
shortage of skilled labour affects the quality of the construction work. In the current scenario,
Australian construction organizations are unable to hire enough workers, engineers or other
professionals who can fulfil the demand of present and future construction projects. The
growing mismatch between demand and supply of construction in Australia can be
considered as a root cause of skills shortage problem (Wilkinson, 2013). According to the
ILO (International Labour Organization), more than two hundred million were unemployed
in 2009 at the time of financial crisis. In 2010, the ILO has been predicted that by 2019 the
count of unemployment will increase to 212 million. In 2008, approximately 61 million jobs
were lost at the beginning of the global financial crisis. The World Economic Forum has
published a report in order to warn that the risk of the global financial crisis as well as social
instability could have an adverse impact on wealth creation, employment and equality.
According to the latest, the labour force participation rate in Australia has been dropped to
65.94% in March 2019. Currently, RBA should pay close attention to the developments in
youth and the adult labour market in order to resolve the economic challenges associated with
the global financial crisis. As per the findings of Farsight report, the pressure over the
construction industry has been increasing which directly strains on workers due to a shortage
of skilled manpower.
4. Building construction supply chain
The construction supply chain can be divided into 4 sectors – Real Estate Investment Trusts
(REITs), Property developers, material suppliers and construction companies (Raj, 2012).
Many of the researchers have investigated the impact of global financial recessions occurred
in 2009. The key findings of their research work showed that the decline in construction
demand directly hit the overall supply chain of construction material (Thangaraj and Chan,
2012). In September 2008, the building construction commencement has reduced by ten per
cent due to tightening of credits. Moreover, the overall revenue of the construction industry
reduced in the year of the global financial crisis. In 2009, the housing and construction
industries were unable to serve their clients due to a shortage of material supply (Schotter and
Thi My, 2013).

By analysing the recent Australian construction market trends, it has been observed that the
supply construction buildings can be decreased in the coming years due to the rapid fall in
housing prices. Some of the latest trends regarding the Australian construction industry have
been represented in the below section:
 The latest trends showed that total work done by the Australia construction industry
fell by 2.4% in March 2019.
 In the March quarter of 2019, the total building work done has fallen by 0.9%.
 Moreover, the preliminary report of March 2019 also estimated that engineering
construction work down has fallen by 4% in March 2019 (Abs.gov.au, 2019).
The above-listed trends showed that all three sectors of the Australian construction industry
(i.e. construction, building and engineering) have experienced the continuous downfall in
terms of the total work down by them in the past. It is a sign of the global financial crisis. It is
essential for the Australian construction industry to focus on the implementation of effective
strategies that can reduce the impact of GFC on the construction industry.
5. Unemployment
The loss of a job is one of the most critical impacts of GFC on the construction industry. The
unemployment rate was increased by approximately 87.5% of the total regions in the first
half of 2009 (Xu et al., 2011). The statistics showed that part-time employment has increased
whereas full-time employment was decreased in Australia during the global financial crisis.
The employment has declined by 8.2% in Australia over the next 3 years of crisis in the
construction sector. The global financial crisis slowdowns the construction activities which
has an adverse impact on the economy.
However, in the construction sector, approximately 40,000 jobs were destroyed in the last
year just because of GFC. The permanent employment positions enforced by Federal and
state governments and the trade unions have destructed by the rapid reduction in construction
activity. As a result of this, 30% of the owner-occupiers are struggling to meet their
repayments and they are afflicted by mortgage stress (Grenfell, 2019). According to the
prediction of Moody’ investor service, around 400,000 homeowners are unable to clear their
debts by selling off their property as per the recent market trends.
De Garis has investigated job ads placed on seek.au.com in order to critically analyse the
recent employment trends in the business market. The results of this survey showed that
demand of professionals including engineers and workers have been decreasing continuously

in construction, real estate & property, trades & services and design & architecture sectors in
Australia.
Figure-3 Decline in Seek job ads (Scutt, 2019)
The above-presented graph showed that employment has grown at a decent clip during 2012-
2014 while the professional’s hiring has been reduced between 2017-2018 (Scutt, 2019).
Conclusion
This report summarized that the Australian construction industry has adversely affected by
the Global Financial Crisis. In this report, the impact of GFC on the construction industry of
Australia has examined on the basis of various factors named as housing property prices,
youth labour market, building a construction supply chain, unemployment and availability of
skilled manpower. It covered both positive and negative impacts of GFC on the construction
industry. The improvement in the housing construction industry after GFC is the best
example of the positive impact of the crisis. On the other hand, shortage of skilled labour,
unemployment, fallen housing price and inadequate building construction supply chain are
major adverse impacts of GFC on the construction industry. The key findings of this report
showed that the construction industry has adversely targeted by GFC in 2009 as the total
merchandise trade in Australia decreased by 11.6%. This report also investigated the recent
trends of the construction industry in context to GFC which showed that the rapid decline in
house prices is a major area of concern as the national price has fallen by 5.1% in 2018 which

is more than the yearly drop occurred in 2009 i.e. 4.6%. The report concluded that the
demand of construction, real estate, property, design and architecture workers has fallen by
19.8% in 2018 due to a downturn in the housing market industry which might result in the
occurrence of the global financial crisis in the coming year. Hence, the Australian
construction industry should implement effective strategies that can reduce the impact of
GFC on the construction industry.
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Appendix
Greater impact on part-time/causal workers After six months of Global Financial
Crisis in 2009