Construction capacity reaches new peak

The Australian construction industry is continuing to expand at a steady pace, however concerns about capacity and supply disruptions linger, according to the latest construction performance report by the Australian Industry (Ai) group and Housing Industry Association (HIA).

The Australian Performance of Construction Index (Australian PCI®) eased by 0.6 points to 57.0 in November, broadly maintaining the pace of improvement recorded in October as the end of lockdowns brought a return to more normal conditions. (Readings above 50 indicate expansion in activity, with higher results indicating a stronger pace of expansion).

The index for new orders remained strong in November (down 0.2 points to 58.5), with improvements in new orders across housing, engineering and commercial construction offset by a plunge in new orders for apartment projects.

“With new orders having recovered from the slump in the September quarter, the construction industry is set to close 2021 making a strong contribution to the rebound of the broader economy,” said Ai Group Head of Policy, Peter Burn.

With an explosion of demand, capacity utilisation reached a series high last month, going up 1.9 points to 85.7 per cent, as builders reported the need to increase staff levels and investment in machinery due to market positivity.

“Capacity utilisation recorded a record high in November and constraints to further expansion in the form of difficulties in filling vacant positions and ongoing disruptions to the supply of inputs are leading industry concerns,” Dr Burn said.

In the four sub sectors, all indices except housing construction remained in expansion. The index for apartment building fell 8.0 points to 56.3, after a huge month in October. Commercial building went up 6.3 points to 68.8, while engineering construction dropped 10.2 points to 66.7.

Housing construction fell into contraction (down 5.3 points to 46.6) after recording broadly stable conditions in October.

“Now with HomeBuilder clearly in the rear-view mirror, it is a shift in consumer preferences that continues to drive demand for new houses,” said HIA Economist, Tom Devitt.

“This will support new house building activity on the ground, and associated employment, throughout 2022.”

The index for input prices creeped up 0.3 points to 97.5 in November, with ongoing high prices from suppliers and importers continuing to put pressure on builders nationwide. The selling prices index eased only slightly by 0.3 points to 78.0.

Despite ongoing skilled labour shortages across the country, the employment index managed to gain momentum, going up 2.2 points to 59.0. The wages index fell by 1.8 points to 73.3 but remained well above its long-run average of 69.1 points.