Home Building Weighs on ‘Surprise’ Lift in Construction


Construction work fell a slight 0.7 per cent in the June quarter, buffered by a jump in private sector engineering construction, as residential building recorded a 5.5 per cent decline for the period.  

Wednesday’s ABS figures show the value of construction work done declined by a modest 0.7 per cent to $50.1 billion in the quarter.

The 0.7 per cent dip represented a surprise after market expectations had forecast a 7 per cent fall. 

Construction work in the March quarter was also revised higher – from a 1 per cent decline to a 0.7 per cent gain.

ABS figures show building work dropped by 3.9 per cent to $28.4 billion in the June quarter.

The value of residential building construction was the main drag on total construction activity, recording a fall of 5.5 per cent to $16.6 billion, with work down 12.1 per cent over the year.

▲ The value of home building dropped 5.5 per cent in the June quarter, bringing the annual decline to 12.1 per cent, according to seasonally adjusted figures from ABS.
▲ The value of home building dropped 5.5 per cent in the June quarter, bringing the annual decline to 12.1 per cent, according to seasonally adjusted figures from ABS.

BIS Oxford Economics senior economist Nicholas Fearnley said that national restrictions in response to the pandemic amplified the slowdown in dwelling construction already underway.

“The lag between weaker dwelling demand caused by the pandemic to dwelling approvals and work done will be at least six months,” Fearnley said.

BIS expects activity to continue trending down into 2021.

“Although, government stimulus measures like HomeBuilder are expected to help cushion the downturn,” Fearnley added.

Housing Industry Association senior economist Geordan Murray said the decline in home building activity could only partially be attributed to Covid-19.

“Most of the building work done during the June quarter was ongoing work on homes that were under construction at the onset of the shut-down,” he said.

The value of work done on new houses declined by 5.5 per cent over the June quarter, new units a 5.6 per cent decline, and the value of building work done on home renovations recorded a 5.3 per cent decline for the period.

While the construction sector has been slowing since mid-2018, Westpac warned of further downside in the sector due to underlying weakness combined with the impact of the pandemic.

“The closure of Australia's national border to international travel will see population growth slow materially over the near-term,” Westpac senior economist Andrew Hanlan said.

“Together, these forces will adversely impact the outlook for activity across home building, commercial building and infrastructure—as some projects are delayed or cancelled.”

ABS Construction Work Done, June 2020

Value of work doneJun qtr 20 $bMar qtr 20 to Jun qtr 20 % changeJun qtr 19 to Jun qtr 20 % change
Total construction$50.1bn-0.7%-2.2%

^ Seasonally adjusted. Source: ABS

The upside was seen in the engineering figures, which increased by 3.8 per cent, seasonally adjusted, to $21.7 billion.

Private sector engineering, such as infrastructure construction jumped by a solid 8.6 per cent—the most in two-and-a-half years.

ANZ’s Catherine Birch said the results suggest that mining investment could have been stronger than first thought, adding that the second quarter capex data due on Thursday would share more detail.

Bis Oxford Economics expect privately funded work to continue trending upwards, supported by a rebound in mining investment, particularly in Western Australia.

Both Western Australia and the Northern Territory recorded a rise in construction activity in the June quarter.

Publicly funded engineering construction fell by 3.3 per cent seasonally adjusted over the quarter.

Fearnly attributed the fall as likely driven by the upcoming completion of the nbn-rollout.

“We expect activity to pick up over fiscal year 2021, supported by a transportation infrastructure boom.”

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