Building activity takes an unexpected turn

According to the Australian Bureau of Statistics’ (ABS) latest building activity data for the June Quarter 2019, the number of new residential dwelling commencements surprisingly increased by 1.1 per cent in seasonally adjusted terms.

Despite this unexpected uptick in the number of commencements, the value of building work is still down 5.5 per cent (seasonally adjusted) compared with the March quarter, showcasing a “weak” result overall, according to BIS Oxford Economics principal economist Tim Hibbert.

“The June quarter building activity data for national total dwelling commencements came in above expectation, up 1.1 per cent q/q in seasonally adjusted terms,” Mr Hibbert said.

“Nonetheless, the trend remains down, with total dwellings falling 14 per cent to 197,228 in 2018-19 (original terms), the weakest result since 2013-14.”

Additionally, Mr Hibbert highlighted that the building sector still has a way to go before a meaningful adjustment will be seen, as current market conditions slowly flow through to new residential construction.

“The slide in residential building has another year to go, taking dwelling commencements to an expected trough near 153,000 in 2019-20,” he said.

“While stimulus is now flowing positively to the established property market, it’s not until the second half of 2020 that it is expected to wash through to new dwelling construction.”

According to Mr Hibbert, one possible hindrance to a meaningful recovery for housing construction is current negative publicity around off-the-plan apartment buildings. 

“Apartments drove the boom and are driving the bust,” he said.

“Highly publicised building defect issues have caused a crisis of confidence for potential off-the-plan buyers that has the scope to deepen or prolong the downturn in residential construction.”

Additionally, Mr Hibbert stated that apartment construction is set to accelerate the rate of decline in overall residential construction.

“While actual construction activity remains elevated, with plenty of cranes still in the sky, the pace of decline in work done is set to accelerate over the coming quarters as many major apartment developments reach completion,” Mr Hibbert said.

He concluded: “Non-residential building is primed to fill some of the void left by the residential sector, with a bumper project pipeline across offices, health and education beginning to filter though in the latest approval data. 

“However, this will not be enough to prevent job losses in the construction sector over the coming year.”

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