Demand for Australian construction workers is starting to weaken

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  • Australian home loan lending standards have been tightened, resulting in falling home prices and a steep decline in building approvals, pointing to a slowdown in residential construction in the period ahead.
  • Given that backdrop, demand for construction workers is now also starting to weaken based on job ads placed on Seek’s job platform.
  • Construction is the third-largest employer in Australia behind healthcare and retail with 1.1943 million workers.

First tougher home loan lending standards, particularly for investors, were introduced by Australia’s banking regulator, APRA, in March 2017. Then home prices began to fall, led by Sydney and, more recently, Melbourne. And now building approvals have started to fall, led by the apartment sector.

Unsurprisingly, demand for construction workers is now starting to decline, as seen in the chart below from Macquarie Bank.

Macquarie Bank

Using data provided by jobs website Seek, it shows that after hitting the highest level on record earlier this year, coinciding with a record amount of new dwellings that were under construction in the March quarter, job ads for construction workers have now started to roll over, indicating a reduced demand from firms.

While clearly elevated compared to prior years, helped by a strong pipeline of new work yet to begin construction, it’s yet another indication of the evolution in housing market conditions seen over the past year.

According to data released by the Australian Bureau of Statistics (ABS), the construction sector employed 1.1943 million Australians in August, accounting for 9.4% of all employed workers.

Only the health care and retail sectors, at 1.679 million and 1.270 million respectively, employ a larger share of workers.

With new home sales and building approvals figures both pointing to a reduction in new residential work in the period ahead, it’s likely that demand from home builders will continue to weaken from here.

The only question is by how much, something that will likely be determined about how weak housing market conditions get?

Some workers will undoubtedly be able to move across to infrastructure projects given booming levels of public investment, but it’s unlikely to be able absorb all workers that switch from the residential sector.

Given the sheer number of workers employed in construction, any steeper-than-expected housing downturn carries the potential to lead to job losses, reduced household spending and, as a consequence, a slowdown in economic growth.

That’s not a given by any stretch, but is a risk that will need monitoring.

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