Home and apartment building surge puts construction sector back in the black

09 April 2015

The Australian Financial Review, 9 April 2015

by Larry Schlesinger

Australia's economic shift away from mining to housing gathered momentum in March as apartment building and detached home construction expanded strongly over the month, says the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index.

The overall construction sector edged into expansion last month, rising by 6.2 points to 50.1 - index readings above 50 points indicate an expansion in activity - the first time since October last year that it has been in the black.

The house building sector (detached houses) returned to growth in March, as its sub-index rose by 10.4 points to 55.8 points after three months of contracting activity. Apartment building activity (led by Sydney, Melbourne and Brisbane) continued to strengthen, rising 1.8 points to 54.9 – its healthiest pace of expansion in four months.

A rise in new orders in house building (work in the pipeline) which returned to growth in March (up 8.2 points to 50.6 points) after declining over the previous four months indicated that "growth in house building sector is likely to be sustained in coming months", the report said.

Apartment new orders also strengthened with the sub-index rising by 4.7 points to 52.4 points, its first increase in six months.

By contrast, engineering construction activity contracted further as its sub-index fell by 1.5 points to 41.2 points in March - the most subdued reading in 10 months reflecting the "progressive slowing in resource-related construction projects".

Commercial construction activity also continued to contract last month, although at a slower rate than in February. The sector's activity sub-index increased by 5.2 points to 47.0 points after a marked weakening in February.

"Renewed strength in house and apartment building drove the Australian construction industry back into growth territory in March," said AIG director Peter Burn.

"The lift in these residential construction sub-sectors from already healthy levels more than compensated for a steeper fall in engineering construction in line with the retreat from investment in mining-related projects and further weakness in commercial construction.

"While new orders for residential construction look positive for the near term, the time is now ripe for higher levels of investment in commercial construction and particularly in infrastructure," Mr Burn said.

HIA senior economist Shane Garrett said: "Residential construction is the only area of domestic demand seeing significant growth at this time.

"It is therefore important that new home building activity does not end up being stifled by the unhelpful policy settings in place, both for the sake of economic growth in the short term and Australia's housing requirements over the longer term.

"In this regard, the RBA's decision not to reduce interest rates this week adds to uncertainty across the economy and represents a lost opportunity."

Read more:

http://www.afr.com/real-estate/residential/home-and-apartment-building-surge-puts-construction-sector-back-in-the-black-20150409-1mh5t5

© Copyright 2019 CVC Venture Managers