Construction industry maintains growth in August

The pace of growth in the construction industry remained relatively unchanged in August, with the Australian Industry Group and Housing Industry Association Australian Performance of Construction Index (Australian PCI) falling slightly by 0.2 points to 51.8.

This marks the 19th consecutive month of expansion in the industry with readings above 50 indicating expansion in activity, and the distance from 50 indicating the strength of the increase.

Engineering construction continued to climb, with its index going up slightly by 0.6 points to 55.0. The new orders sub index also picked up sharply in August (up 6.5 points to 56.8), reflecting new tender wins and ongoing strong demand across the building and infrastructure project areas of construction.

However, the remaining three sub sectors: housing, apartment and commercial construction are in the red, with apartment construction dropping a further 3.9 points to 32.8. The apartment sub-sector has now declined in 12 of the past 13 months following a cooling in new orders over the second half of 2017 and through 2018.

House building slipped slightly into negative territory (down 0.5 points to 49.8) while commercial construction remains subdued despite a slight increase (up 0.1 points to 49.2).

“With the commercial construction and house building sub-sectors down fractionally, employment growth stalled last month in contrast to the general expansion of jobs over the past year or so,” said Ai Group Head of Policy, Peter Burn.

“Looking ahead, lower levels of new orders in the residential sub-sectors point to further slowing whereas for commercial construction and engineering construction, the pipelines of new work grew more rapidly in August, pointing to further gains in the period ahead.”

According to HIA Economist, Diwa Hopkins, the cooling off in the residential construction sector is largely due to a significant withdrawal of investors from the market.

“Foreign investors in particular now face additional federal and state-based taxes when purchasing new housing in all but one of Australia’s eight states and territories,” she said.

“Domestic investors are now subject to tighter credit conditions which are weighing on their demand for new housing.”

Hopkins added issues regarding access to finance are unlikely to ease in the near term with major lenders already hiking their mortgage rates.

“Add to these factors a situation of falling house prices in the key Sydney and Melbourne markets, and the list of deterrents to investor activity is quite varied,” she said.

“We expect credit conditions to continue to weigh on new home building activity into 2019.”

Across the other sub-indexes, the input prices index remain elevated in August, but eased by 6.8 points to 75.4, while wages also eased from July’s decade-high result (down 4.5 points to 62.7), with demand for workers continuing to increase.

Despite continued cost increases, the selling prices sub-index fell into contraction, decreasing a further 4.6 points to 46.8 amid strong competition in securing work.