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The construction boom in Australia may have passed its peak in its ability to act as a driver of economic growth, the latest figures suggest.

In a new report, the Australian Bureau of Statistics indicated that on a gross value added basis (seasonally adjusted), the sector’s contribution to the economy dropped by 3.6 per cent in the September quarter, and that construction output through the year had fallen by 3.8 per cent.

According to the data, investment in new buildings fell by 11.5 per cent amid the winding up of some projects and a more limited supply of others coming through the pipeline.

Meanwhile, dwelling investments dropped 1.4 per cent amid a 1.6 per cent drop in investment on new dwellings and a one per cent drop in renovations investment.

Largely thanks to this, output levels within the overall economy contracted by 0.5 per cent during the quarter.

Whilst the Bureau sighted high rainfall levels as part of the reason for the residential slowdown, there are fears that the building sector may have peaked in terms of its ability to drive economic growth forward.

For now, Housing Industry Association economist Geordan Murray said, a strong pipeline of work will see activity in the sector hold up at historically high levels for at least the next few quarters and the new report "is not likely to herald the turning point for residential investment just yet."

Over the longer term, however, the ability of the sector to drive the economy forward is looking increasingly shaky.

In its latest forecast, the Australian Construction Industry Forum says it expects the overall dollar value of work done on building and civil construction projects throughout Australia to drop from $219.922 billion in 2015/16 to $207.276 billion this year and to further drop to $198.651 billion by 2018/19.

Whilst much of this drop reflects the completion of high dollar value mining projects, the ACIF feels activity will also decline in non-residential building over the next two years and will peak before dropping back in residential construction next year.

In housing, meanwhile, the HIA expects housing starts to drop by a quarter over the next two years to go from a forecast 231,970 in 2016 to 173,230 by 2018.

Already, residential building approval levels have fallen to their lowest level in two years, although non-residential building approvals have been higher in recent months.

For the past two years, the construction sector has held up an otherwise weak Australian economy.

Going forward, the ability of the sector to keep doing so must be subject to question.

 
Bizprac (expire May 30 2018)
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