Construction work on the way down

Construction outlook

Engineering construction has been fairly flat over the past couple of years, even in Western Australia and the coalfields, despite extremely high commodity prices. 

There was plenty of disruption to apartment construction in the second half of 2021, but a small bounce was recorded in the March quarter. 

There were more than 100,000 detached homes under construction at the end of the 2021 calendar year, which represented a record high. 

However, for new houses construction work done was very disappointing in the March quarter, dragging down work done in the residential sector into a quarterly contraction of -0.9 per cent, to be -2.4 per cent lower than a year earlier. 

The Reserve Bank is confident that construction will remain solid for the next two years.

These figures cast some doubt on that view. 

In truth, there were factors which probably pulled down the March result - some related to COVID shutdowns, and some related to the fortnight of flooding in Queensland and New South Wales - and the June figures will probably record a bounce as the rain eased. 

Another possible factor or explanation is that capacity constraints, the high cost of building materials and trades services, and numerous current and potentially looming insolvencies in the sector are starting to drag the cycle lower in line with falling building approvals. 

Maybe it was a bit of both. 

---

The Reserve Bank's Luci Ellis delivered another excellent speech on housing market trends through the pandemic, and the outlook.

It was interesting to see estimates on the decline in the average household size, the COVID impact on inner-city housing prices, and the expected rebound in population growth.

Well worth a read, as always.