Construction Resilient Despite Delta Lockdowns

Construction held up stronger than expected in the September quarter with just a 0.3 per cent decline in output despite sites being shuttered in Sydney and Melbourne due to Delta Covid outbreaks and related lockdowns.

Data from the Australian Bureau of Statistics released on Wednesday showed the value of construction work done fell to $53.93 billion from June’s $54.1 billion, a much smaller decline than the 3 per cent drop forecast by economists.

Construction activity was suspended for two weeks due to the Delta outbreak —from mid-July for NSW and late September for Victoria—and has faced continued capacity and other strict social distancing measures since partially reopening.

The fallout from rolling lockdowns was concentrated in the south-eastern corner of Australia with construction work done plunging by 8.1 per cent in NSW in the September quarter—the biggest decline in almost 21 years.

Work fell by an even sharper 15.5 per cent in the ACT to be at its lowest point in nine years.

Construction in Victoria surged by 5.8 per cent, the biggest lift in 3.5 years, with hours worked lifting by 0.4 per cent, defying expectations for a sharp decline as the state remained in lockdown for more than half of the quarter.

The construction boom also continued in Queensland with work done up 5.5 per cent in the quarter—the biggest lift in eight years.

“Both NSW and the ACT experienced a construction shutdown, which was then followed by an extended period of workforce restrictions,” BIS Oxford Economics principal economist Nicholas Fearnley said.

“The construction shutdown in Victoria occurred at the end of September and carried over into early October, so the December quarter is likely to show most of the impact.”

Residential work done was varied with work done on houses up 3.3 per cent quarter-on-quarter to a record high, while work done on other dwellings fell 7.7 per cent quarter-on-quarter to a seven-year low.

The value of residential construction was unchanged at a total $18.8 billion for the three months, while engineering construction ticked up 0.4 per cent to $23.5 billion.

Public sector non-residential building was the weak spot during the quarter, dropping 9.4 per cent, but private sector non-residential building rose for a second consecutive quarter, by 1.4 per cent.

New work done declined by 1 per cent, while alterations and additions jumped 5.6 per cent.

The property industry is entering into a period of great uncertainty, with global supply chains under increasing pressure as economies reel back up from pandemic shutdowns, putting huge demand on materials and shipping resources.

CommSec senior economist Ryan Felsman said supply chain issues and rising labour cost pressures were likely to persist into 2022.

“Dwelling commencements could be nearing a peak as the HomeBuilder grant is pared back, property prices moderate and building costs surge,” Felsman said.

“Of course, growing supply chain snarls, elevated freight costs, lower product availability and labour shortages have all combined to constrain output.”

CommSec economists estimate that the number of residential dwelling commencements will ease from 181,000 in 2020 to 178,000 by the end of 2021, before falling to 159,000 in 2022 due to slower population growth and some overbuild supply.

While residential building is expected to slow in 2022, Corelogic’s latest construction outlook report suggests there is still a healthy pipeline of infrastructure-related projects.

In fact, there were 1714 new construction projects at the end of October 2021, up 10.7 per cent over the past three months.