Construction growth slows down in June

Australia’s construction industry has just recorded its 17th month of expansion, albeit at a much slower pace, according to national construction and housing bodies - the Australian Industry Group and the Housing Industry Association.

The Australian Performance of Construction Index, compiled by the two organisations each month, fell by 3.4 points to 50.6 in June. That was the lowest reading since the industry’s return into the black in February 2017.

Across the four sub-sectors, commercial construction was the strongest performer, recording a 1.1 point increase to 53.7, while engineering construction expanded at a slower rate compared to May, with the index falling 4.8 points to 51.0.

Residential construction also recorded a slowdown in activity, with house building recording a significant drop from last month’s numbers (down 8.4 points to 50.2). The apartment building sub-sector contracted for a fourth month albeit at a slower rate (up 1.6 points to 48.4).

“The run of expansion enjoyed by the construction sector all but paused as the financial year drew to a close,” said Ai Group Head of Policy, Peter Burn.

“The residential sub-sectors detracted from the industry’s momentum with apartment building continuing its orderly retreat from boom conditions and house building stable in June.”

“Looking ahead, new orders were broadly stable overall with a sharp drop in additions to the apartment pipeline offset by modest gains in orders for new work in other sub-sectors."

HIA Senior Economist, Shane Garrett, warned the continuous contraction in the apartment building sector could have consequences on the rental market and jobs.

“Apartment building activity is particularly sensitive to the restrictions on foreign investors which were tightened in recent state budgets in addition to more onerous APRA regulations with regard to interest-only loans,” he said.

“Such interventions risk undermining the capacity of rental markets in key growth areas – and could slow down the pace of job creation and economic expansion.”

However, the Australian Industry Group is predicting an uplift in the industry over the next 12 months, particularly in the non-residential construction sectors.

An outlook survey, conducted by the Australian Industry Group and Australian Constructors Association released this week, shows a forecasted rise in the total value of non-residential construction work by 9.3 per cent in 2018, followed by a further lift of eight per cent in 2019.

The report predicts growth to be led by a strong pipeline of non-mining infrastructure work in line with the significant growth impetus from public sector spending on transport infrastructure projects.

“With the wind-down in mining and energy-related engineering work all but complete, new activity – particularly in road and rail transport projects, other civil works, apartment building, telecommunications and commercial construction – is not just filling the void; it is underwriting aggregate growth in the activity of the major construction companies and in the size of their workforces,” said Australian Industry Group Chief Executive, Innes Willox.

“While the composition of activity is set for further changes heading into 2019 – most notably with a significant fall in multi-level apartment building – overall growth in both business activity and the construction workforce is set to continue.”

According to the survey, engineering construction is forecast to remain a key driver of growth, with total turnover rising 8.4 per cent in 2018 and 12.6 per cent in 2019. This reflects continued high levels of work done on major road and rail projects, led by various big-ticket projects across the eastern states, with solid support from telecommunications infrastructure.

Strong growth is also projected to continue in the multi-level apartments sector in 2018 (up 14.8 per cent), but the value of work is set to turn down sharply in 2019 (down 16.6 per cent).

While total employment is expected to rise by 2.9 per cent in 2018 and a further 2.7 per cent in 2019, businesses are reporting worsening labour shortages, with 66.7 per cent of respondents reporting either ‘major’ or ‘moderate’ difficulty in recruiting skilled labour in the six months to March 2018, up from 63.6 per cent in the previous six months.