Construction Slump: When Is Infrastructure Going to Kick Off?

The volume of construction work posted a 0.4 per cent drop in the third quarter, a fall of 7 per cent over the year, according to the latest ABS figures.

The seasonally-adjusted estimate for total construction work completed fell 0.4 per cent to $50.8 billion in the September quarter.

Engineering construction was the main drag on total activity, recording a 0.2 per cent fall to $21.1 billion in the September quarter, down 9.6 per cent for the year.

Residential construction fell by 3.1 per cent, down 10.1 per cent over the year, with falls recorded in all states but Victoria.

But with lending indicators showing improvement, Housing Industry Association economist Angela Lillicrap says this suggests that “the decline in residential construction will not continue”.

And while residential construction has dragged, it's good news for non-residential construction posting an increase of 4 per cent.

Lillicrap also added that the boost in infrastructure spending announced by state and federal governments in this year’s budgets had not yet been seen given the decline in engineering and construction work for the period.

“This begs the question where and when is the infrastructure spending going to occur?” Lillicrap said.

BIS Oxford Economics economist Nicholas Fearnley said it expects public sector activity to fall further this year, largely driven by the winding up of the NBN rollout.

“This is despite an expected turnaround in roads construction, with a number of high profile projects, such as WestConnex – Stage 3b and the Western Harbour Tunnel & Beaches Link, set to kick off over the next 12 months,” Fearnley said.

Nationally, growth in new construction as a share of the population is falling, according to CBA economist Gareth Aird.

“On our calculations the decline in residential construction is taking place at a time when the excess supply of dwellings is relatively small,” Aird said.

“This means that it won’t be long until the excess supply has been eroded. Our estimates point to an undersupply of housing from late‑2020. In time this should put downward pressure on vacancy rates and upward pressure on rents and dwelling prices.”