Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 9 April 2015

AFR: Severe downturn ahead for SA building

Adelaide stagnating

I spent some time recently here discussing Adelaide's mendicant economy, pulling together a handful of graphics from my chart packs to back up my points.

My analysis of the ABS Building Activity data has consistently shown that the construction boom has been threatening to pass South Australia ("SA") by.

Now it looks as though we have further confirmation of that - reported Tim Binsted in today's AFR:

"On the east coast, the negative economic impact of the dwindling mining boom is being offset by a red hot housing market, particularly in NSW, that has seen the nation's biggest brick maker Brickworks scrambling to bring on new plants to meet demand.

But Hickinbotham Homes MD Michael Hickinbotham said SA is missing out on the action.

"The SA housing market is currently experiencing a very severe downturn, with a significant number of building companies having closed their doors over the last 18 months".

"There are rumours that some large interstate companies may be scaling down or leaving the state."
An anaemic housing market adds to the woes facing SA Premier Jay Weatherill.

SA is already struggling with the highest unemployment of any state, the exit of car manufacturing and uncertainty over the future of the state's ship building industry.

Building to fall to lowest level in 15 years?

The ABS Building Approvals data has suggested an even worse dynamic, with the pipeline looking all but set to dry up.

Continued the AFR:

"HIA chief economist Harley Dale said the weakening state economy is taking housing down with it.

"The unfortunate reality in the here and now is that the SA economy is weak and the new home building sector is weakening quite considerably".

"We could be in for a 10 to 15 per cent fall in new home building activity that could take us back to some of the lowest levels we've seen in the last 15 years … we are building record numbers of homes in Australia at the moment … but it is quite a divergent profile for South Australia."

"The government there has a tough gig, but while the economy is going to find it rough, with manufacturing of cars and submarines coming out, the impact on cement is not that great," he said.

By way of further damning evidence the AFR piece cites Adelaide Brighton (ASX: ABC) seeing activity coming off in SA with pre-mixed concrete expected to be down 6 per cent year-on-year, and Boral (ASX: BLD) highlighting "challenging conditions" and "muted demand",

Add in the maufacturing employment malaise and it's really not a great look for Adelaide.

Not that this is anything new - it's a point I've been making on this blog for years.