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Apartment construction in Australia is soaring

Mark Nolan / Getty Images

Depending on who you are, and perhaps where you live, Australia could be seen to be in the midst of both a building boom and bust.

One side of the sector residential construction is booming, while at the same time engineering construction is plummeting.

Nothing demonstrates this phenomenon better than the ABS’ December quarter construction work report, released today.

According to the bureau, the value of construction work over the quarter fell by 3.6% to $45.4 billion, leaving the value down 4.3% on the levels of a year earlier.

At first glance that suggests the building sector is struggling – it was, after all, the third decline in the last four quarters – but it only tells half the story.

The composition is the story.

The largest drag on the headline figure came from engineering construction. It plummeted by 9.5% to $23.4 billion over the quarter, leaving it down a mammoth 14.7% on the levels of a year earlier.

There are few better examples of the unwinding mining infrastructure boom.

While engineering construction fell off the proverbial cliff, the value of building construction rose strongly, up 2.7% to $25 billion, an increase of 8% from 12 months earlier.

Non-residential construction rose by 2.5% to $8.96 billion, up 2.2% from Q4 2015.

Residential construction also increased, rising by 2.7% to $16.03 billion, the highest level on record. From one year earlier it soared by 11.5%.

That final point makes a fitting segue into these two excellent charts from Tapis Strickland, economist at the NAB, tying all that information together.

The first breaks down the ABS release into the value of private residential, non-residential and engineering construction completed, going back to 1990.

And here’s the breakdown of residential construction. For anyone living in capital cities along Australia’s eastern seaboard, it will reinforce what you see every time you look out the window: apartment construction, particularly high rise developments, has taken off.

At a time when Australian economic growth remains sluggish, it’s certainly been a welcome development.

However, with the decline in engineering construction likely to last for several years yet, whether residential construction can continue to boost economic activity beyond the short-term remains uncertain, particularly given early signs of softening in the residential property market.

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