Construction fails to build momentum

The continuing slump in residential construction shows no signs of slowing and major infrastructure projects looks set to underpin the industry in the near future.

That's the takeaway from the Australian Industry Group/Housing Industry Association's Performance of Construction Index (PCI) data for January.

The data shows there was a marginal easing in the decline of total construction but the contraction continues across virtually all sectors.

The report uses a baseline figure of 50 to indicate an unchanged environment, with the greater the number above or below that mid-line indicating how hard the sector is contracting or expanding.

On that basis the apartment building sector is down to 24.9 points, having contracted or held steady for 15 of the past 18 months.

Residential house building is also down to 34.4 points, which the PCI report notes is the "softest reading on housing activity since September 2012 and was associated with a sixth month of contraction in new orders".

Commercial construction is still declining at 44.9 points and engineering construction fell to 43.3 as the sector prepares to ramp up to replace end-of-year completed works.

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Ai Group policy chief, Peter Burn, said the residential construction figures aren't as gloomy as first glance would suggest.

"While the decline in activity is now well-established, levels of activity remain respectable by historical standards, reflecting the dimensions of the preceding boom," he noted.

"With infrastructure projects still providing major sources of activity, engineering construction looks set to underpin the overall sector in the foreseeable future."

Housing Industry Association senior economist, Dr Geordan Murray, attributed the housing downturn to the big falls in the Sydney and Melbourne property markets and the construction of more than a million homes over the past five years.

"Having made substantial headway in alleviating the housing shortfall, the acute price pressures are dissipating; rental price growth has slowed and the median dwelling prices for the major capital cities are declining," he said.

"The residential building industry is now adjusting to weaker market signals and the drop in the Australian PCI new orders sub-index suggests that there is less residential building activity entering the pipeline."