Apartment building return to growth

For the first time in a long time, all sub sectors and sub-indices in the Australian Industry Group/Housing Industry Association’s monthly construction activity report are in the growth phase, indicating the sector is slowly bouncing back from consecutive years of contraction and record lows from the effects of the pandemic last year.

The Performance of Construction Index (Australian PCI) eased slightly by 0.2 points to 57.4 in February, with readings above 50 indicating expansion in activity and higher results indicating a faster expansion.

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Perhaps the highlight of this month’s report was the strong bounce back of the apartment sector, which has experienced negative growth for a number of years now. The apartment building index jumped a whopping 21.1 points to 66.7 in February 2021, marking the sector's first return to growth since February 2018.

Growth in the housing sector was also phenomenal, with the index hitting a new record high of 75.5 last month.

Commercial and engineering activity, on the other hand, slowed from December’s peaks, recording drops of 8.0 and 0.5 points to 54.5 and 52.8 respectively. New orders for new projects in those two sectors also turned negative in February, indicating a further slowing in growth in the coming months.

Ai Group Head of Policy, Peter Burn, said while recent data has been encouraging, the immediate outlook is mixed.

“New orders are higher only in the housing segment but are flat for apartment building, mildly negative for commercial building and sharply lower for engineering construction,” he said.

“With several components of fiscal stimulus winding down, delivery on the increased infrastructure pipeline will become a key swing factor in the continued recovery over the rest of 2021.”

HIA Economist, Tom Devitt, said demand for new housing has been driven to record levels on the back of HomeBuilder, low interest rates and shifts in preferences towards detached housing and regional areas.

“The end of HomeBuilder's first phase deadline in December caused a spike in new home sales in the final month of 2020. The second phase deadline is similarly likely to push back new home sales until March this year,” he said.

“The work that will have entered the pipeline after this point will support home building activity well beyond HomeBuilder.”

Devitt said the weaker outlook for apartments still depends very much on the return of overseas migrants, students and tourists.

The new orders index slowed in the last month following a spike in December 2020, dipping 8.5 points to 50.1. The supplier deliveries index went up by 0.3 points to 56.9 as builders appear to be increasing their orders and catching up on supplies after freight disruptions.

The index for input prices rose a further 3.8 points to 80.2 – its highest level since 2018 – as demand for building materials and supplies surged. The selling prices index also jumped 6.7 points to a record high of 66.3, indicating that more builders are able to pass on their cost increases.

The average wages index rose by 3.3 points to a three-year high of 64.4 and the employment index expanded strongly to its highest level since 2014 (up 4.7 points to 61.7), as activity and employment resumed in more locations and across more segments of construction.