There may be a housing boom, but construction activity in Australia is actually shrinking


Activity across Australia’s construction sector contracted at a faster rate in June with the latest HIA performance of construction index from the Ai Group falling 1.4 points to 46.4.

The index has now registered a reading below the 50 level separates sector expansion from contraction in seven of the past eight months.

According to the Ai Group the industry’s general weakness in June was evident in continued contractions in construction activity (down 1.3 points to 48.6), new orders (down 2.4 points to 45.6), employment (down 2.6 points to 45.5) and deliveries from suppliers (up 2.5 points to 45.4).

The group also note that of the four construction sub-sectors apartment building was the strongest performer in June, rising 6.0 points to 53.0, while house building also returned to expansion (up 3.4 points to 51.7). Engineering construction completed a full year in contraction (down 3.3 points to 45.2) amid weaker mining-related projects and major infrastructure construction activity nationally. Commercial construction also remained in negative territory for an eighth consecutive month (down 0.3 points to 48.9).

Ai Group head of policy Perter Burn suggests the report is symptomatic of weakness in commercial and engineering construction overshadowing continued strength in residential building.

“The Australian PCI® for June highlights the continuing trend of falling mining-related engineering construction overshadowing growth in the residential sector. Despite some large LNG projects that are yet to be completed, the shrinking of the resources and energy investment pipeline is a clear constraint on the industry and the economy as a whole. Commercial construction is also struggling amid continuing subdued approvals and commencements. The results reinforce the need for greater consistency and reliability in the development of pipelines of major infrastructure works across the country.”

Those views are reflected by HIA’s chief economist Harley Dale who suggests infrastructure investment needs to be encouraged.

“The latest Australian PCI® results confirm that residential construction is doing the heavy lifting for the domestic Australian economy. Revving up the infrastructure investment engine is crucial, as we have been highlighting for a considerable time now, but think where the economy would be without the substantial impetus provided by healthy new home building activity. The housing components of the Australian PCI® are consistent with that economic support continuing, but there is urgency now to fostering a broader recovery – Federal and State governments need to respond accordingly”.

While that’s not an unreasonable request, with the state of public finances deteriorating for most states and territories, along with the federal government, a large-scale government infrastructure push looks unlikely at present.

So as expressed by Burn and Dale, it’s likely residential construction will have to do much of the heavy lifting for some years yet.

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