Housing construction slows 3pc over the year

Monthly inflation indicator 3.6pc

Economists had expected the monthly inflation indicator to come in at 3.4 per cent over the year to April.

It's a fairly new and volatile index, and you could drive yourself mad trying to forecast it each month, but in the event we got a slight upside miss at 3.6 per cent over the year.

Fruit and vegetables prices have temporarily jumped according to the ABS, due to poor weather and growing conditions for crops. 

Petrol prices were also another +2.2 per cent higher in April and considerably higher over the year, but have since dropped sharply - probably back down to around where they were around a decade ago, even without the subsidies - so next month's reading should be somewhat better for fuel. 

With state and Federal governments set to distort the headline inflation figures with subsidies over the remainder of 2024, it's worth keeping  a closer eye on the other measures, such as inflation excluding volatile items (4.1 per cent), and trimmed mean inflation (4.1 per cent). 

Source: ABS

All in all, a bit disappointing, it must be said, but the more important figures will be the next quarterly inflation numbers released on 31 July.

As such, there hasn't been too much of a change in market pricing, h/t Martin Whetton of CBA:

It feels like some of the inflation story from here may be driven by global factors, such as oil prices, which are essentially beyond Australia's control.

James Foster ran through the inflation figures in more detail here in more detail here. 

Higher rates are working...

It does seems as though higher interest rates are working to slow consumer spending, business hiring, and wages growth...as well as housing approvals, and now construction.

I wonder whether we'll follow in Canada's footsteps, where with record high population growth the unemployment rate suddenly spiked from 5 per cent to 6.1 per cent, changing the whole perception of what policy measures will be need needed ahead.

Source: Statistics Canada, Trading Economics

Housing construction slows further

Building approvals are at decade lows in Australia, which is perhaps no major surprise given policy settings, but it had been expected that the high number of dwellings in the pipeline would sustain housing construction at a strong level. 

In the event housing construction work done slowed by a further -1.2 per cent in the March 2024 quarter, to be a disappointing -2.8 per cent lower over the year.

As widely reported, many construction firms are collapsing into insolvency or administration, and so in turn some of the approved residential projects have been mothballed or cancelled.

Queensland has been one bright spot for apartment construction work done, driven by strength in activity at the Gold Coast, but New South Wales and Victoria remain a long way below the previous cycle's highs. 

Overall, the construction of units, apartments, duplexes, and townhouses has not really responded to record high demand for residential space, partly since the costs of medium-density construction are around 50 per cent higher than pre-pandemic levels, and there's little profitable margin to build at today's prices, except in some premium and coastal locations. 

Detached house construction activity had been fairly strong in Perth, but also slowed in most states and territories over the March 2024 quarter.

Some of the capacity challenges for housing have arguably been due to the strength of activity in highly paid public infrastructure projects and in mining engineering, with engineering construction running at levels we haven't seen since the resources construction boom years. 

The wrap

Overall, construction work done slumped by a disappointing -2.9 per cent in the March quarter, pointing to another weak quarterly GDP growth figure for the Aussie economy.

One good thing from this week's figures is that the costs of housing construction - and the prices of rents - are not rising as quickly as before. 

This morning's building approvals figures must surely be a bit better than the desperately low 12,950 last month, and indeed we should see a temporary pull-forward increase in Queensland and Victoria, in the rush to beat changes to the building code.

However, I expect to see unit approvals in Victoria fall to 15-year lows in the second half of the year due to tax changes and comparatively less favourable policies for landlords. 

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