Construction work declines more than expected

Construction work declines more than expected
Construction work declines more than expected

Construction work completed fell 2.5% in the December quarter 2018, according to the latest figures released by the ABS, but still rose over the year.

Despite the December quarter decline, the residential building industry did $68.7 billion worth of work on new homes during 2018 - which was an all time high.

Work done is 2.1% up on the year.

Construction costs rose 3.6% over 2018, the biggest increase in nine years, according to CommSec.

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Construction work declines more than expected

"The 2018 calendar year set a record for residential building activity but the amount of building work being done by the industry is now slowing," HIA senior economist Geordan Murray said.

"Following its mid-year peak, activity began to retreat.

"Other leading indicators of residential building activity, such as sales of new residential lots, new home sales, building approvals and housing finance all deteriorated quite significantly during the latter stages of 2018.

“This implies that the pipeline of new residential building work is thinning out and as the homes that are currently under construction reach completion there are likely to be fewer new projects to replace them."

HIA suggest the number of homes under construction will continue to decline throughout this phase of the cycle and the value of building work will decline accordingly.

"Today’s figures are significant as they provide a good indication that next week’s GDP figures will show that the slowdown in new home building has detracted from GDP growth for the second consecutive quarter," Murray said.

"HIA forecasts further declines in home building over the next two years which will provide a headwind for economic growth."

Construction activity still sits at high levels, however it's another weak reading in the Australian property industry.

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Construction work declines more than expected

Earlier this month the dwelling approvals reached their lowest levels since 2013.

CommSec's Craig James says the inflation dragon has been sighted in the economy and is alive and well in the construction sector.

"The higher costs are in evidence across home building, commercial construction and engineering," James said.

"The question is whether builders and developers will be able to pass on the higher costs in the current environment."

Construction work fell across all states and territories.

The Northern Territory was down over 14%, followed by Queensland at 5.8%.

New South Wales was down 4.1%, Tasmania 3.6%, Western Australia 3.3% and ACT 3% down.

South Australia saw 2.5% decline and Victoria just 1.1%.

Joel Robinson

Joel Robinson

Joel Robinson is a property journalist based in Sydney. Joel has been writing about the residential real estate market for the last five years, specializing in market trends and the economics and finance behind buying and selling real estate.

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