Building commencements dip in September quarter

The value of new building starts in the September quarter fell by 0.5 per cent (in seasonally adjusted terms) from the previous quarter, according to data released by the Australian Bureau of Statistics (ABS).

This drop was largely driven by a fall in residential building, which fell 3.4 per cent (seasonally adjusted) from the previous quarter.

According to the ABS data, the value of building starts was also down significantly when compared to the September 2018 quarter.

In the September 2019 quarter, overall building starts fell 5.1 per cent from September 2018, with the value of residential starts plummeting 11.0 per cent when compared to the same quarter in 2018.

According to Geordan Murrary, senior economist at the Housing Industry Association (HIA), the reduced building starts were a byproduct of the market conditions in the months leading up to the September quarter.

“Many of the new homes where on-site building work commenced during the September quarter are likely to have been purchased during the first quarter of 2019, when confidence in the housing market had dropped to the lowest ebb of the cycle,” Mr Murray explained.

“On-site building work on a new home typically starts several months after a block of land has been purchased and a builder engaged. The lag can be even longer for new apartments purchased off the plan. 

“The soft result in the September quarter is more reflective of the weak housing market conditions experienced during the early part of 2019 than the conditions that we saw in the second half of the year.”

According to Mr Murray, the decline in building commencements in new multi-unit developments has been the biggest downward driver, particularly in Sydney and Melbourne.

“The number of dwellings in new multi-unit developments that commenced during the September quarter dropped by 20.6 per cent in the quarter and is down by 39.0 per cent against the level a year ago,” he said.

Further, he said building starts for new detached houses also declined during the quarter, but the extent of the decline was much smaller than units. 

According to Mr Murray’s analysis of the ABS data, detached housing starts declined by 4.8 per cent during the September quarter, dropping down to a level that is 16.8 per cent lower than the figure recorded in the same quarter in 2018.

However, Mr Murray said he expects building commencement figures to improve, given the improvements in the housing market that were experienced throughout the second half of 2019, a claim that remains consistent with the fact that building approvals increased month-on-month in November, which could lead to an increase in commencements through 2020.

“The second half of 2019 saw a marked improvement in housing market sentiment, and leading indicators suggest that demand for new homes has stabilised.

“The improved market conditions mean that it has become less likely that the substantial declines in new home starts that characterised 2019 will continue into 2020,” he said.

[Related: Building approvals soared in November]