Residential boom props up Australian construction industry

There may be early signs of the housing boom slowing down, but apartment and house construction continue to surge, offsetting a sharp mining building downturn.

While recent building approval figures appear to show a peak in new home construction looming, the levelling off in building plans has not yet fed through to construction activity.

The Australian Industry Group and Housing Industry Association’s Performance of Construction Index (PCI) for September came in at 51.9 – slightly down on the previous month, but still above the key 50-point level that indicates expansion.

The fall from the previous month was entirely driven by a 9.3-point slump in engineering – a category dominated by resources projects – to 36.6, indicating a sharp contraction.

Commercial construction also fell 6.5 points last month and is now slightly in negative territory at 48.1.

In contrast, house building rose 2.4 points to 56.8, indicating a solid expansion in that sector.

Apartment construction was even stronger, with a 4.5-point increase to 63.2, highlighting a unit building boom that is so far offsetting the downturn from the mining bust.

“Residential construction activity remains the cornerstone of the broader construction industry and will retain this role into at least the first half of 2016,” observed HIA economist Diwa Hopkins.

She said the commercial construction sector is also showing positive signs.

“There are some tentative signs of improvement emerging from the commercial sub-sector of construction, but these are yet to be sustained ? the August rise in the commercial construction activity sub-index took a tumble in September,” the economist added.

“Nevertheless, new orders for this segment of the market are rising which suggests a recovery may emerge in the new year.”

Builders are also starting to confront rising labour costs, while building material costs are rising even more strongly, probably reflecting increasing demand and the impact of a lower dollar on import prices.

Source: ABC News