House building gains momentum

The national construction industry is maintaining its upward momentum with house building overtaking commercial and engineering construction in the past month.

May marks the 16th consecutive month of expansion for the industry, with the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index recording a healthy 54 points, with readings above 50 indicating growth.

While conditions across the entire construction sector remain healthy, residential construction has pushed ahead of commercial construction which led the way in April, as well as engineering construction which has remained strong in the past six months.

House building activity jumped 8.3 points to 58.6, while engineering construction continues to deliver by recording a 2.6 point rise to 55.8.

While the construction of non-residential buildings continue to grow, the pace slowed significantly in May, with the index dropping 11.4 points to 52.6.

Apartment building activity continues to decline, albeit at a slower rate (up 3.5 points to 46.8).

"The construction industry is busier than ever in 2018, with strong demand across most major segments of the market,” said Ai Group Chief Economist, Julie Toth.

“Residential construction activity remains elevated but it is clearly slowing from recent peaks, with house construction now taking the lead over apartments,” she said.

“Engineering construction continues to expand, as it works its way through a very large pipeline of transport and other major infrastructure projects.

“Commercial construction growth is evening out, but forward orders and planning approvals suggest a stronger period of activity still lies ahead in this sector.”

According to HIA Senior Economist, Geordan Murray, the growth in house building is partly due to the large number of off-the-plan sales in the past two years.

“This pipeline of off-the-plan sales should sustain an elevated level of home building over the year ahead as these developments progress," he said.

“The boom in apartment project commencements occurred back in 2016 and the peak level of construction activity owing to this spike has almost worked its way through the system.

“The apartment market is now in a contractionary phase but the level of activity remains high in a historic context.”

The report also showed expansion in new orders (down 1.6 points to 54.9), deliveries from suppliers (up 3.0 points to 56.7), and employment growth (down 8.0 points to 51.5).

Input price inflation escalated further in May (up 8.1 points to 82.6) on the back of energy costs and supplier price hikes related to commodity prices, while the pace of growth in wages appears to be gaining strength as demand for workers increases (up 3.6 points to 66.9).