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

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Wednesday, 24 August 2016

Record building boom continues

Construction declines in Q2

Total Construction Work Done declined by a further 1.9 per cent in the June 2016 quarter to $47.8 billion, to be 7.9 per cent lower over the year. 

The result was driven by another 5.1 per cent decline in engineering construction in the quarter - largely mining related - to leave this component down by 24.9 per cent year-on-year.



The building boom, on the other hand, continues apace. 

Although there has been a solid increase in alterations and additions (major renovations) lately, record building activity through this cycle has been overwhelmingly been driven by "other residential" building, specifically units, apartments, and townhouses.  



Mining cliff now 4 years old

Next month it will be fully four years since the so-termed "mining cliff" began. 

Interestingly engineering construction work done increased in the June 2016 quarter in Queensland, where most of the retracement has already taken place, while activity has actually trended up strongly in New South Wales and Victoria over the past year. 

I've long been warning that Western Australia would have to take its medicine sooner or later, and the reality check kicked in this quarter, with engineering construction crashing down to be some 48 per cent lower than one year ago. 

These figures confirm what has no doubt been obvious on the ground for some time - that the local economy is doing it tough as it passes through this painful slowdown period.


Engineering construction work done has also fallen substantially in the Northern Territory over the last six quarters, including by a further 28 per cent over the past year, with only the massive Ichthys LNG project is holding this result aloft.

The good news is that the decline in engineering construction is now thought to be around 80 per cent complete, meaning that sooner or later this will stop being such a drag on the economy. 

In fact, in New South Wales, Victoria, and now Queensland, it already has. 

Record building boom continues

The building boom and its associated multiplier effect has largely benefited the largest capital cities.


New house building, while still increasing steadily in Victoria, Queensland, and South Australia, appears to have peaked for this cycle nationally.


On the other hand the value of construction work done on attached dwellings was still tracking at record levels in the June quarter. 


The wrap

Residential building activity was still running at full pelt through the second quarter of the year, pushing up building costs in cities such as Sydney.

The Housing Industry Association (HIA) announced today that it believes that new home building will now decline for the next three years, with annual commencements falling from a peak of over 232,500 dwellings to 166,500 in 2018/19, with some downside risks to the forecast.

The good news is that engineering construction will have already stopped falling significantly over the next 18 months.

Ichthys aside, most of the project-driven declines have now washed through the figures outside Western Australia.

Analysts expect to see moderate GDP growth in the second quarter of calendar year 2016 with net exports not making much of a contribution this time around.

On balance, though, the planned hand-off has been pulled off very well, with Australia now getting close to the bottom of its mining cliff.

Although resources regions have felt the pain, the largest capital cities have by and large pulled through relatively unscathed.