Survey of Industry Conditions Report - September 2014 qtr

Welcome to the September 2014 quarter edition of Master Builders’
Survey of Industry Conditions, a report on current conditions and business
sentiment in the building and construction industry.
EDITION 20 – SEPTEMBER 2014 QUARTER
Master Builders
Survey of Industry
Conditions

Survey of Industry Conditions (Edition 20 – September 2014) Master Builders Page 1
Economic outlook
Business confidence in the Queensland economy and the building industry moved up over the September
2014 quarter, recovering the ground lost over the previous quarter.
Queensland outlook 12 month economic outlook
September 2014 quarter
Queensland
economy
Queensland
building industry
Stronger 48% 54%
Stable 41% 36%
Weaker 11% 10%
Index level 60.2 62.5
Improving condition
Weakening condition
This is the first positive move since the confidence boost that came from the 2013 federal election. It
reflects a more stable environment where the Reserve Bank of Australia has continued to hold the official
cash rate at a low level and employment growth has been moderate.
While for many regions of Queensland the reality of the end of the resources boom continues to be felt, it
is reassuring that confidence appears to be levelling at a relatively high point.
Conditions in the residential and commercial sectors
Reflecting the positive outlook, residential and commercial sector conditions continued to improve
during the September quarter. The residential sector crossed into positive territory for the first time in the
five year history of the survey. Despite an improvement in the commercial sector, conditions remained
very challenging.
Looking forward to the December quarter, conditions in both sectors are expected to surge forward into
positive territory.
Queensland building industry conditions Residential sector conditions
Jun 2014 Sep 2014 Dec 2014
Stronger 31% 36% 43%
Stable 37% 37% 50%
Weaker 32% 27% 7%
Index level 49.1 53.0 59.6
Commercial sector conditions
Stable 36% 38% 56%
Weaker 35% 30% 7%
Index level 48.0 49.5 57.1
Improving condition
Weakening condition

Master Builders Survey of Industry Conditions (Edition 20 – September 2014)
Business performance Turnover
Jun 2014 Sep 2014 Dec 2014
Stable 41% 38% 42%
Weaker 23% 27% 12%
Index level 52.5 51.3 58.8
Profitability
Stable 44% 48% 47%
Weaker 26% 26% 15%
Index level 49.8 48.7 55.9
Work in progress Average contract price
Encouragingly, this is expected to improve further over the coming quarter, helped by consumer
confidence. This flowed through to display centre traffic, which moved up over the quarter from 47.3 to
49.7. It is expected to improve further, and even return to positive territory by the end of the December
quarter.
Turnover and profitability
Turnover dropped away slightly but remained in positive territory in the September quarter. Profitability
moved down to an index of 48.7, which is just below satisfactory.
Both business performance benchmarks are expected to move forward significantly by the end of
December 2014. More importantly, the number of businesses reporting weaker turnover and profitability
is expected to halve over a six-month period from June to December.
business activity
The level of business activity held steady over the September quarter. As with last quarter, many
businesses (39%) are reporting a stronger level of work in progress. The majority of respondents (59%)
reported that average contract prices remained the same.
There is little evidence of upward pressure on prices as the industry continues to be driven by strong
competition for available work and budget-conscious consumers.
Improving condition
Weakening condition

Input costs – wages and materials
Material costs inched up over the September quarter and are forecast to maintain this level through to
December. Average wages rose slightly, with two-thirds of businesses expecting these to hold steady
through to the next quarter.
Input costs Average wages
Jun 2014 Sep 2014 Dec 2014
Stable 53% 54% 61%
Weaker 10% 7% 5%
Index level 56.6 58.2 57.3
Average wages
Stable 59% 55% 67%
Weaker 18% 18% 9%
Index level 50.4 51.2 53.6
Costs increasing
Costs decreasing
Employment levels and skills shortages
Employment levels improved over the September 2014 quarter, and while the attrition rate is still high (21%
of businesses reported a reduction in the size of their workforce), it has improved over the past three months.
The Australian Bureau of Statistics is also recording improved construction employment with a 1.7% growth
in total construction employment reported in their August 2014 Labour Force data release.
The demand for apprentices weakened slightly during the September quarter, which indicates that many
businesses are still not confident enough in the long-term prospects to take on this significant commitment.
Employment levels Employment
Jun 2014 Sep 2014 Dec 2014
Stable 63% 60% 69%
Weaker 23% 21% 12%
Index level 46.2 48.3 50.6
Apprentice levels
Stable 68% 63% 74%
Weaker 21% 25% 15%
Index level 45.7 44.2 47.6
Looking forward, the majority of businesses expect their staffing and apprentice levels to improve over
the next three months. As in previous quarters, very few businesses are reporting serious difficulties in
recruiting and retaining suitably qualified employees and subcontractors.
Rising condition
Falling condition

Business constraints
The most critical constraint on business growth in the September quarter was once again the lacklustre
level of demand. This has been the biggest drag on the construction industry since the September 2011
quarter as a result of a cooling in mining investment, weak confidence, fears about job security and
troubled government finances. Encouragingly, the magnitude of the constraint has been falling.
Labour costs has moved up as a constraint. It is expected to pose a problem as demand continues to pick
up, but will be dictated in a large part by the labour needs of the resource sector.
Planning approval processes increased as a constraint despite the government’s reform process being
well advanced. It is hoped that this will improve once the new planning legislation is adopted in 2015.
In the meantime, indications are that the time taken to bring land to the market has increased which is
causing frustration amongst builders and developers.
Business constraints
Housing affordability
and house prices remained steady in many regions of the state. This trend is expected to continue.
New housing continues to be relatively expensive, with 71% of respondents identifying affordability as
having a negative impact on new housing demand.
Impact of affordability on new housing demand Outlook for housing affordability

Regional summary
For the most part, the trends of the previous quarter continued in September. The south east corner
continues to lead the way, with the Sunshine Coast and Gold Coast regions being the standout
performers. Far North Queensland had a significant surge forward off a low base, while the resource
regions of Mackay & Whitsunday and Central Queensland continued to struggle.
The key constraints across most regions were once again the level of demand, planning approval
processes, and infrastructure charges.
Labour costs is an area of concern in regions with a less flexible labour market, dominated by the
resource sector. There are signs, however, that the labour market is already beginning to respond to the
downturn, moving to the new growth areas such as the Sunshine Coast. Availability of land is growing as
a concern for more regions as land supply is slow to respond to the increased construction demand.
Despite the challenges, respondents from across much of the state retain a positive outlook for the future.
Region
Building
industry
outlook
Turnover Profit Employment
Average
wages
Capital
expenditure
Level of
work
Brisbane 67.4 53.8 50.4 50.0 51.1 48.3 50.7
Gold Coast 68.9 50.6 48.0 49.3 52.3 54.4 51.3
Sunshine Coast 67.9 54.3 51.8 49.4 49.3 46.8 48.2
DarlingDownsand
SouthWestQueensland
58.6 54.8 50.0 49.1 53.6 53.3 49.2
Burnett Wide Bay 55.2 42.7 41.7 45.2 50.0 42.4 32.6
Central Queensland 45.2 45.0 43.0 42.7 50.0 46.9 30.0
Mackay 46.0 45.0 44.0 43.8 49.0 38.0 43.8
North Queensland 48.8 46.1 46.1 47.2 55.6 54.2 44.4
Far North Queensland 71.4 53.6 52.7 48.1 51.0 49.1 43.8
Queensland 62.5 51.3 48.7 48.3 51.2 48.5 46.6

Brisbane
Business confidence in the building and
construction industry remained high, recovering
the small loss made in the previous quarter.
This confidence is well-founded, with the trading
conditions for the residential sector jumping ahead
over the quarter. While the commercial sector
remained comfortably within positive territory,
it did lose some of the ground made over the
previous quarter. Further significant improvement
is expected over the next quarter.
Trading conditions
Turnover and profitability moderated but are
expected to surge forward in the three months to
December 2014.
Business performance
Employment levels in the industry improved
slightly over the three months to September 2014.
The majority of businesses (55%) are still planning
to hold their employment level steady, while a
smaller number (19%) are considering further
reductions. Current levels of apprenticeships are
expected to be maintained.
Given the relatively weak state of the industry and
soft employment conditions across Queensland,
wage pressures held steady in the September
quarter but remained in growth territory. This is
the sixth quarter in a row that the Average Wages
Index has been in growth territory, and the index is
forecast to push higher over the next three months.
This is stoking concerns that there will be a wages
breakout as trading conditions in the region return
to the longer-term average.
As with the last quarter, very few businesses
are reporting serious difficulties in recruiting
and retaining suitably qualified employees and
subcontractors.
The most critical constraint on business growth
in the September quarter was once again the
lacklustre level of demand.
The other key constraint on business was labour
costs. As noted above, wage pressures continued
in the September quarter despite the relatively
weak state of the industry and soft employment
conditions. This is stoking concerns there will be a
wages breakout as trading conditions in the region
return to the longer-term average.
Planning approval processes and infrastructure
charges continue to act as significant constraints
on business. The Queensland Government
continues to take action to address these
constraints and we are confident that this will help
to reduce the importance of these constraints over
time.
Brisbane

goldcoast
construction industry held steady during the
September quarter, maintaining the high levels
achieved in the previous three quarters.
conditions for the residential sector moving into
positive territory. The commercial sector continues
to struggle, losing the ground made over the
previous quarter. Significant improvement is
expected for both sectors over the next quarter.
Trading conditions
Both turnover and profitability dropped away
slightly. This is expected to be a temporary
condition with strong expectations for the future
that are backed up by impressive building approval
data.
Employment levels held steady over the September
quarter but still remain inside negative territory.
The attrition rate remained worryingly high, with
22% of businesses reporting a reduction in the size
of their workforce.
subcontractors.
Wage levels are coming under pressure on the Gold
Coast with 28% of businesses reporting an increase
over the September quarter. This is expected to
continue into the next quarter.
Once again, the most critical constraint on business
growth in the September quarter was the lacklustre
level of demand. As in previous quarters, weak
confidence, fears about job security and household
finances and troubled government finances
continued to challenge the construction industry
in the region.
The next most critical constraint on business
growth in the region was infrastructure charges,
along with planning approval processes. The
Queensland Government continues to take action
to address these constraints and we are confident
that this will help to reduce the importance of
these constraints over time.
Another key constraint on business was labour
costs. As noted above, wage pressures on the Gold
Coast grew over the September quarter despite
soft employment conditions.
Gold coast

sunshinecoast
construction industry remained at a high level
during the September 2014 quarter. The region has
now enjoyed a strong level of confidence for a full
12 months.
conditions for the residential sector remaining well
within positive territory, despite losing some of the
gain made in the previous quarter. The commercial
sector, while still positive, experienced a more
significant pull back. This is expected to turn
around next quarter with both sectors anticipating
improved conditions.
Trading conditions
Turnover and profitability remained comfortably
within positive territory. As a further sign
of confidence in the region, both business
performance benchmarks are expected to improve
over the December quarter.
Employment levels in the industry improved
slightly over the three months to September 2014,
with nearly a third of businesses (28%) indicating
that they are now in a position to expand their
workforce.
subcontractors.
Wage levels are coming under pressure on the
Sunshine Coast with 29% of businesses reporting
an increase over the September quarter. This is
expected to continue into the next quarter.
lacklustre level of demand. This constraint is
compounded by the lack of available land to
accommodate new construction.
Labour costs is another important constraint. As
noted above, wage pressures on the Sunshine
Coast grew over the September quarter despite
soft employment conditions.
growth in the region was planning approval
processes, along with infrastructure charges. The
to address these constraints and we are confident
that this will help to reduce the importance of
these constraints over time.
sunshine coast

DarlingDowns&Southwestqueensland
Confidence in the building and construction
industry dropped away again during the
September 2014 quarter but remained within
positive territory.
While still strong, trading conditions for both the
residential and commercial sectors eased off at
the same time as Toowoomba Regional Council’s
infrastructure charges concession came to an end.
The expectations for the future are also muted,
making the challenge for the next three months to
maintain the current levels.
Trading conditions
Turnover and profit held steady over the quarter
and are expected to improve as we move towards
the end of the year.
Employment levels held steady, with 82%
anticipating that they will be able to retain their
existing workforce.
Even in this new subdued climate, 29% of
respondents are still experiencing wage growth
pressure. It is anticipated that this pressure will
increase over time.
Encouragingly, the majority of respondents (65%)
now expect to maintain or increase their current
apprentice levels.
subcontractors.
constraint on business growth in the region was
labour costs.
growth in the September quarter was once again
the lacklustre level of demand. As in previous
quarters, weak confidence, fears about job security
and household finances and troubled government
finances continued to challenge the construction
industry in the region.
Planning approval processes is another important
constraint. The Queensland Government continues
to take action to address this constraint and we
are confident that this will help to reduce the
importance of these constraints over time.
Darling Downs & South west queensland

burnettwidebay
construction industry held steady at high level
during the September 2014 quarter.
The actual performance of the residential and
commercial sectors was more mixed, with the
residential sector still in negative territory and
dropping further (45.7). The commercial sector
surged forward strongly, finishing well within
positive territory (57.7).
Looking forward, the residential sector is expected
to improve over the coming three months, while
the commercial sector is not expected to maintain
this quarter’s gain.
Trading conditions
Turnover and profitability fell sharply, losing
much of the gain from the previous quarter.
Disappointingly, indices for both turnover and
profit are now back within negative territory,
though this is expected to improve over the next
three months.
Employment prospects in the industry improved
over the three months to September, with the
majority of businesses (76%) now expecting
to hold their current staffing levels steady.
Unfortunately this was not matched with
apprenticeship employment, where there was a
significant increase (up to 29%) of respondents
reporting weaker demand for apprentices.
subcontractors. This is reflected in the wage growth
pressure which held steady over the quarter.
As employment levels improved, labour costs
moved up to be the second most critical constraint.
There is evidence however, that the market is
already adjusting to the new levels of growth.
Trade contractors are beginning to move into the
region to take up work and the shortage of certain
in-demand trades like carpenters, painters and
tilers is already easing. Labour costs are expected
to ease into the future.
Planning approval process continues to challenge
Burnett Wide Bay business. The Queensland
Government continues to take action to address
this constraint and we are confident that this will
help to reduce the importance of these constraints
over time.
Burnett wide bay

CentralQueensland
construction industry dropped away again in the
September quarter, returning to negative territory
for the first time since the GFC.
This drop in confidence comes in spite of a
strong upward swing in trading conditions.
While still at low levels, both the residential and
commercial sectors showed a strong improvement.
Encouragingly, the residential sector is expected to
improve further over the coming quarter and the
commercial sector should be able to hold onto the
gains already made.
Trading conditions
These results were supported by an improvement
in both turnover and profitability, whichwhile
remaining in negative territory, moved forward
over the quarter. This performance is better than
expected, given the continued retraction of the
resources sector which has in turn led to muted
employment and consumer sentiment.
Both business performance benchmarks are
expected to improve over the December quarter.
As expected, given the weak trading conditions,
employment levels remained soft. Encouragingly,
fewer respondents are reporting reductions in
employment levels which is expected to continue
into the coming quarter.
Consistent with the softer employment conditions
there was little movement on wages. This is
expected to continue into the next quarter,
although wage expectations are still being led by
the resource sector. Even with unemployment in
the region above the state average, employers are
reporting that it is hard to fill vacancies at realistic
wage levels.
The most critical constraint on Central Queensland
business growth in the September quarter was
once again the lacklustre level of demand.
Also of concern is the availability and cost of
finance. The region is dealing with the common
scenario of valuers, representing the mortgage
lender, not providing values that meet the cost
of the house land package. In these cases, unless
the client is in a position to finance the difference
directly, the contract does not proceed.
While employment levels remain weak, labour
costs is the third most critical constraint, with wage
expectations still being led by the resource sector.
central queensland

mackay&whitsunday
construction industry held steady over the
September 2014 quarter, remaining in negative
territory. Optimism in the region has been
tempered by the continued slowdown in
resources-related activity.
Trading conditions for the commercial sector
improved, while the residential sector dropped
away again. Both indices have now completed
two years in negative territory. Encouragingly,
both sectors are expected to improve over the
December quarter, perhaps even making it back
into positive territory.
Trading conditions
Turnover held steady and profitability improved
during the September quarter, even in the face of
challenging business conditions. Both business
performance benchmarks are also expected to
improve further over the next quarter.
Employment levels in the region held steady over
the September 2014 quarter, with the majority
(58%) now reporting that they expect to maintain
their current staffing levels.
Apprentice employment was subjected to
increased pressure as businesses are unwilling
to make long-term commitments until the
uncertainty surrounding the future level of
demand in the region clears.
Very few businesses are reporting serious
difficulties in recruiting and retaining suitably
qualified employees and subcontractors. This is
reflected in the wage growth pressure which held
steady over the quarter.
The most important constraint on business growth
in the September 2014 quarter was the lacklustre
level of demand.
Another important constraint on business growth
in the region is planning approval processes and
the related constraint of infrastructure charges. The
to address this and we are confident that this will
help to reduce the importance of it over time.
While employment levels remain weak, labour
costs is the third most critical constraint with wage
expectations still being led by the resource sector.
Even with unemployment in the region above the
state average, employers are reporting that it is
hard to fill vacancies at realistic wage levels.
mackay & Whitsunday

northQueensland
construction industry held steady during the
September 2014 quarter, maintaining a positive
outlook.
This confidence is underpinned by a strong
improvement in the residential sector trading
conditions. While more still needs to be done to
return to positive territory, it is a welcome result
for a sector that has been struggling for some time.
Unfortunately this result was not matched in the
commercial sector which failed to hold on to the
gains of the previous quarter.
Both sectors remain optimistic however, with a
strong improvement expected over the December
quarter and possibly even a return to positive
territory.
Trading conditions
Turnover and profitability both suffered a small
drop over the quarter but are expected to post
strong results over the next three months.
Employment levels held steady over the quarter.
The majority of respondents (61%) now expect
to maintain their current employment levels. The
outlook for apprenticeships has also improved
strongly with 40% of respondents expecting to
increase their apprentice levels. This is a vote of
confidence in the long-term health of the industry.
Wage levels strengthened once again over
the quarter with nearly a third of respondents
reporting stronger wage levels. At the same time,
businesses are not yet reporting any difficulties
in recruiting and retaining suitably qualified
employees and subcontractors.
Consistent with the state-wide results, the most
critical constraint on North Queensland business
growth in the September 2014 quarter was the
While labour costs is the next most critical
constraint this is expected to be kept in check.
There is evidence that the market is already
adjusting to the new levels of growth. Trade
contractors are beginning to move into the region
to take up work and the supply of in-demand
trades like site managers, electricians and tilers is
increasing.
Another important constraint on business growth
in the region is infrastructure charges. The
to address this and we are confident that this will
help to reduce the importance of it over time.
north queensland

farnorthQueensland
construction industry surged forward slightly
during the September quarter reaching the highest
level in the history of the survey.
This confidence is supported by a marked
improvement in trading conditions for both the
residential and commercial sectors. Both sectors
are even more optimistic for the future, expecting
trading conditions to return to positive territory by
December 2014.
Trading conditions
Turnover and profitability also posted a strong
result, returning to positive territory for the first
time in two years. Both business performance
benchmarks are expected to improve still further in
the December quarter.
Employment levels in the industry were fairly
stable over the three months to September 2014.
Apprenticeship levels held steady over the quarter
with three-quarters of respondents maintaining
apprenticeships at the same level. A majority of
businesses expect this to continue into the next
quarter.
Despite the strong growth, wage levels were steady
across the region and should continue to remain
so over the next quarter to December. Businesses
are not reporting any difficulties in recruiting
subcontractors.
Consistent with the state-wide results, the most
critical constraint on business growth in Far North
Queensland over the September quarter was once
again the lacklustre level of demand.
Labour costs is another key constraint in the
region. While they are not yet increasing across
the board, they are a significant input to the
construction process and any movement is keenly
felt by an industry experiencing constrained
demand.
The availability of land has emerged as a significant
constraint. It remains to be seen whether land can
be supplied to meet this growing demand.
far north queensland

MB-1916610-14
About the survey
This report is based on a quarterly survey of businesses in the building and construction industry undertaken by Master Builders.
The analysis in this report uses the original survey data and indexes to assess the views of survey respondents regarding current
and future conditions in the industry.
The indexes in the report are calculated using the following formula:
Index = Σ proportion of respondents*((n-i)/(n-1))
where n = the number of response options for a given question
i = the number of a particular response option
The possible range of the index is 0 to 100. The index level would be zero if every respondent selected the weakest response
option for the relevant question, while it would be 100 if every respondent selected the strongest response option.
For most of the indexes, an index level of 50 indicates that conditions are satisfactory and an index level of over 50 indicates that
conditions are more than satisfactory.
Conversely, an index level of less than 50 indicates that conditions are less than satisfactory. A more detailed guide to
interpreting the index results is provided below.
Very poor 0 – 19.99
Poor 20 – 49.99
Satisfactory 50 – 69.99
Good 70 – 84.99
Very good 85 – 100
The interpretation of the business constraints and skills shortage indexes is slightly different and a detailed guide to interpreting
these index results is provided below:
No constraint/shortage 0 – 29.99
Slight constraint/shortage 30 – 39.99
Moderate constraint/shortage 40 – 59.99
Major constraint/shortage 60 – 74.99
Critical constraint/shortage 75 – 100
Master Builders Head Office
417 Wickham Terrace, Brisbane Queensland 4000
p 3225 6444 | f 3225 6545 |f e ask@masterbuilders.asn.au
masterbuilders.asn.au

Survey of Industry Conditions Report - September 2014 qtr

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