Queensland is expected to be the strongest performing state over the next five years when it comes to spending on road construction and maintenance, as a strong turnaround in public spending couples with continuing strong growth in subdivision work over the next two years, according to a new report by economic forecaster BIS Shrapnel.
Later, the anticipated commencement of the state's first private toll road project, the first stage of the North-South Bypass, will further buoy growth in the road construction and maintenance sector.
The Road Construction and Maintenance in Australia, 2004-2019 report says the current boom in the roads sector has seen work rise by 11% in 2003/04 to a record $11 billion nationally.
This follows on from similarly strong growth in 2002/03, which was driven by activity in the private sector, primarily subdivision road construction and toll roads construction.
Study leader and economist Adrian Hart asserts that public sector-funded construction has so far been the weak link in the roads sector recovery post-2000, having fallen by 11% during 2003/04 and 25% in real terms since its last peak in 1999/2000, despite strong revenues.
This will now change, however, with a strong pick-up in public sector-funded work expected over the next three years.
Driving the strong cycle of roads activity ahead, according to BIS Shrapnel, is an ambitious program of government-funded works, from both federal and state governments, coupled with the largest ever roll-out of private toll road infrastructure in Australian history.
State government-sponsored projects will be joined by a $3.6 billion boost in federal funding for major highways, arterials and local roads outlined in the AusLink white paper in mid-2004.
Overall, public sector-funded road construction is forecast to rise by nearly 50% over the three years to 2006/07, to a value of $5.1 billion.
Over the next six years, work will be undertaken on no less than seven separate major toll road projects. Five of these lie in and around Sydney and include the completion of the $680 million cross-city tunnel (commenced January 2003), the $1.6 billion Westlink M7 (commenced July 2003), the $1.1 billion Lane Cove Tunnel (commenced April 2004), the $1.8 billion City West Link (M4 East), and the $2 billion F3 to M2 Link.
The other two toll road projects include the $1.8 billion Mitcham-Frankston Expressway outside Melbourne and the $1.1 billion first stage of Brisbane's North-South Bypass, which BIS Shrapnel now expects to go ahead as a private sector project.
While the coming phase of toll road construction will dwarf the experience of the mid to late 1990s, BIS Shrapnel warns the boom will prove unsustainable, with a prolonged downturn in road work expected in the three years between 2006/07 and 2008/09 as the economy weakens, housing stagnates and the next tranche of public sector work dries up.
It is forecasting public sector-funded road construction to slump by around 23% through 2007/08 and 2008/09. Overall, total road construction and maintenance activity is expected to decline by around 13% between the peak in 2005/06 and 2008/09.
The initial trigger for this downturn will be an overdue correction in subdivision construction, which BIS Shrapnel estimates has run well ahead of underlying demand during 2004. While construction in this sector may hold up over the next year or so, activity is forecast to fall substantially in late 2005 and remain low as inflation spikes and aggressive interest rate rises stifle this sector, and possibly expose a substantial degree of speculative lot development.
From there, high interest rates are forecast to drive a sharp downturn in the domestic economy, which is expected to affect the framing of state and territory government budgets.
While both construction and maintenance tasks will be affected by the forecast economic downturn, the weakening position of budgetary finances (by both federal and state governments) is likely to see a sharper correction in construction activity as this part of the roads budget offers a faster and easier route to cutting expenditure.
"The boom/bust outlook is now looking extremely likely and this is expected to be a major challenge for companies operating in this industry over the next five years," Hart says.
"In the near to medium term, they will have to contend with further increases in labour and construction costs and supply chain difficulties as demand increases. But they will also need a strategy in place to deal with the downturn in work that we are forecasting from 2006/07."