Construction maintains growth despite supply and price pressures

The Australian Performance of Construction Index (Australian PCI®) has improved by 3.1 points in March to 56.5, indicating further recovery in the construction sector following a big drop over December and January due to the COVID-19 Omicron peak.

The index is adjusted on a monthly basis by the Australian Industry (Ai) Group and Housing Industry Association (HIA), with index readings above 50 indicating expansion and the distance from 50 indicating the strength of expansion.

Following a brief but sharp drop over the summer holiday period, all four sub sectors are back in the black and in expansion phase, with commercial construction leading the way with a 4.5 point jump to 63.3 in March.

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Apartment building also had a good run in March with a healthy 6.3 point increase to 56.3, while engineering and housing construction moderated somewhat in the month but are still sitting in the expansion phase at 53.6 and 54.2 points respectively.

According to HIA Economist, Tom Devitt, the uptick in apartment building can be owed to affordability concerns in the detached market leading to homebuyers considering units instead; as well as the return of overseas migrants, students and tourists.

The new orders index lifted slightly in March by 0.3 points to 55.7, indicating improving demand.

With the sector picking up pace again, supply and input cost pressures become more prominent, with the input and selling prices indexes continuing to remain very high at 94.6 and 85.2 points in March.

Supplier deliveries contracted for a ninth consecutive month, although improving slightly by 1.3 points to 43.2.

“The availability of land, labour and materials is the salient constraint on builders, rather than any absence of demand,” Devitt said.

The employment and wages indexes also remain elevated, as builders continue to report difficulty in attracting and retaining staff, particularly skilled ones.

“Reports of difficulties managing sites with high numbers of people in isolation resurfaced during March as COVID infections lifted,” said Ai Group Chief Policy Advisor, Peter Burn.

“Businesses reported they were recovering at least some of their higher costs in the market. Unless further disruptive factors intervene, it appears likely that current activity levels will continue over coming months although the capacity to lift activity in the face of the supply pressures is becoming increasingly challenging.”