Australian residential construction is going ballistic

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Activity across Australia’s construction sector expanded for a second consecutive month in September with the latest Ai Group – HIA performance of construction index – printing at 51.9. Although 1.9 points weaker than the 53.8 level of August, it was the first back-to-back expansion since October 2014.

Reflective of the divergent performance between residential and non-residential construction, the continued increase was driven entirely by activity in home building.

The housebuilding sub-sector increased by 2.4 points to 56.8, the fastest expansion seen in 11 months, while that for apartment building jumped by 4.5 points to to 64.9, a level last seen in August last year.

While the residential sector is humming, the news elsewhere was far more subdued — and that’s being kind.

The commercial construction sub-index slid 6.5 points to 48.1, taking the figure back below the 50 level that separates expansion from contraction, while the engineering component collapsed, dropping 9.3 points to 36.6. The latter has now contracted for 15 consecutive months on the back of a continued decline in mining infrastructure spending.

Clearly the divergence between residential and non-residential construction is continuing to grow, putting an even greater emphasis on the need for residential construction to remain robust in order to buttress economic growth.

Thankfully, there are signs that residential activity looks set to remain strong in the months ahead.

“Strong residential building activity held the overall construction sector above water in September, overshadowing a fall in commercial construction and further contraction in the engineering construction sub-sector,” said Peter Burn, head of policy at the Ai Group.

“This further momentum in the non-mining construction sub-sectors is an important element in the task of rebalancing the economy as mining investment and commodity prices return to more normal levels.”

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