Fall in the volume of construction work done over Q3: Gareth Aird

Fall in the volume of construction work done over Q3: Gareth Aird
Jonathan ChancellorFebruary 6, 2021

GUEST OBSERVER

The fall in the volume of construction work done over QIII was larger than market consensus which was for a fall of 2.0% {CBA in line with consensus}.  However, the larger than expected fall follows an upwardly revised 2.1% increase in QII (previously reported as +1.6%)

There were plenty of familiar themes in today’s result – falling engineering construction was partially offset by a pickup in residential construction.  And non‑residential construction remains weak.  This has been the general pattern in the data for the past two years.  The chart opposite depicts these trends.

Engineering construction continues to fall as we work our way through the massive downturn in mining investment.  The drag on growth from falling mining investment will continue through 2015/16 and isn’t expected to lessen until 2016/17.  It’s the hangover from a once in a century mining boom.

Click to enlarge

Residential construction is powering along and is providing a partial offset to declining engineering construction.  We have a big lift in apartment construction underway across Australia.  And the forward looking indicators, namely the building approvals, suggest that this will continue deep into 2016.  Today’s figures show that the volume of dwelling construction is up 12.4% through the year.  The resultant increase in the housing stock from a big lift in residential construction will put some downward pressure on rent and dwelling price inflation over the next year.

The breakdown by public and private sectors construction shows that it’s important to look at the reality rather than necessarily believe the rhetoric.  Despite there being plenty of talk around big investment in public infrastructure the data shows that it simply isn’t the case; at least at the national level.  Public construction work done is down 9.8% through the year and has been a drag on GDP growth since 2010.   

The construction deflators show that inflation in the residential construction sector has picked up a little while it is negative in the engineering space.  It’s unsurprising really given residential construction has picked up sharply while engineering construction is in decline. 

Click to enlarge

Gareth Aird is economist at Commonwealth Bank and can be contacted here.

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

Editor's Picks

First look exclusive: Abedian family reveal Broadbeach apartment plans
DCF Property break ground at First Light in South Melbourne, with Ironside appointed construction partner
The top seven new North Shore apartments expected to launch in 2025
First look: KTQ sell Garfield Terrace site for $56 million as demand soars for Gold Coast beachfront sites
First look exclusive: Abedian family propose second stage of Greenmount Beach Hotel redevelopment