State of the Nation – Construction

Residential building a bright spot for construction industry

Australia’s home building boom has reached a new peak despite data revealing a slowdown in the pace of growth.

Official figures on total construction work done, released by the Bureau of Statistics yesterday, showed residential construction as the one bright spot for a sector that has become a drag on the economy.

Overall construction activity for the March quarter weakened sharply, with a seasonally adjusted 2.6 per cent slump in total construction work to $47.9 billion, coming despite a rise in residential dwelling construction.

The numbers failed to keep pace with depressed forecasts as the market had expected a more modest 1.5 per cent decline.

The retreat continues recent softness in the construction space, with construction work tumbling 6.7 per cent in the 12 months to March 31.

“Construction work is trending lower from historic highs, led lower by the mining investment downturn,” Westpac senior economist Andrew Hanlan said. “With the sector accounting for 14 per cent of the economy this is a material headwind.”

Residential construction serves as the exception, with a 1.5 per cent quarterly rise bringing year-on-year gains to 5.7 per cent and delivering a record high home building figure of $16.6bn.

The rate of growth slowed, however, in a sign the expansion in apartment building — most prominent in Melbourne and Sydney — may be topping out.

The year-on-year pace of residential growth was the slowest since December 2013, while the quarterly growth rate was the weakest in three quarters.

Analysts have doubted whether the current uptick in apartments can be maintained amid talk of a glut of inner-city dwellings, while Reserve Bank governor Glenn Stevens this week queried whether the epicentre of construction activity had been where it was most needed.

“There’s no doubt there’s a lot of supply coming on,” Mr Stevens said. “We are much closer now to, at least in numbers, adding to the stock the sorts of additions we need for population growth. Whether they’re the right dwellings in the right places is another question.”

Overall building construction weakened 1 per cent in the quarter as a 5.5 per cent fall in non-residential construction offset the residential rise.

Building construction inflation reached a five-year high on an ­annual basis, but slowed noticeably in the quarter in a further sign of strain to retain residential construction growth rates.

The biggest weakness over the last 12 months has come in the engineering space, with a 4.2 per cent fall in the March quarter ensuring a 13.7 per cent year-on-year slump.

CommSec economist Savanth Sebastian said the figures again highlighted a “baton pass” from the resources sector to the housing sector as the major engine of Australia’s growth.

“Interestingly the gap between building (residential and commercial) and engineering in terms of total work is the largest in almost six years,” he said. “The results are even more staggering when you consider that just over two years ago engineering work surpassed total building by more than $11bn.

Unsurprisingly the laggards on a state-by-state basis were Western Australia and the Northern Territory as major resources projects near completion and the pipeline for new projects shrinks, while NSW outperformed given its place at the heart of housing sector growth. (Source: