As resource construction work drops back, the recovery in the residential building sector continues to gather momentum as home building activity throughout the nation surged to its second highest level on record in the March quarter, the latest figures show.
Meanwhile, housing affordability has surged to twelve year highs on the back of low interest rates, subdued house prices and growth in household earnings.
On a seasonally adjusted basis, the latest data from the Australian Bureau of Statistics shows that the overall dollar value of construction work done throughout Australia remained almost unchanged during the March quarter, edging up just 0.3 percent to come in at $53.621 billion.
But there were widespread differences within individual sectors as engineering and non-residential building dropped back 1.6 percent and 1.5 percent respectively but the residential sector surged 6.8 percent to come in at $13.055 billion – the second highest level on record.
And whilst detached housing (up 4.7 percent during the quarter) performed well, around two-thirds of the growth came from multi-residential dwellings, where the dollar value of work done surged by 12.7 percent during the quarter and was 19.6 percent up on the same period one year earlier.
Compared with the same quarter in 2013, the overall value of construction work done is up 2.6 percent, with engineering virtually unchanged but residential building up 8.4 percent and non-residential building up 3.1 percent.
Housing Industry Association Economist Geordan Murray welcomed the figures.
“Today’s figures are the first official statistics confirming that the strong leading indicators that we saw late last year are flowing through to strong levels of residential building activity on the ground,” Murray said.
The results came as other data shows the affordability of mortgage servicing costs relative to household income is at twelve year highs amid an environment of moderate dwelling price conditions, low interest rates and respectable earnings growth – albeit with the relative affordability of new homes compared with existing homes having dropped back slightly.
The HIA Commonwealth Bank Housing Affordability Index rose by 2.1 percent in the March quarter to come in at 77.2 and is 10.8 percent higher compared with a year ago.
All other things being equal, higher levels of affordability are conducive to greater levels of demand for new residential construction as they imply a higher level of capacity on the part of households to finance new dwelling purchases or renovation upgrades than would otherwise be the case if affordability was not so high.
HIA Economist Shane Garrett says the near-term outlook for affordability remains good but warns cyclical improvements in this area should not mask long term challenges associated with providing adequate and affordable levels of housing for the long term needs of the Australian population.
“The RBA has signalled that interest rates are set to remain low for some time,” Garrett said.
“As home price pressures ease off, we expect home owner affordability to remain reasonably favourable for the foreseeable future.”
“The key policy challenge exists well beyond this cyclical improvement in home owner affordability. Ensuring adequate and affordable housing for those harbouring aspirations to one day enter the home ownership market and for the large number of rental households in Australia requires a concerted policy focus on boosting new housing supply. That needs to be a key policy priority for all levels of government.”
The average monthly cost of servicing a mortgage is $2,423 – down from $3,095 two years ago.
Sydney is the least affordable area, with residents there having to fork out $3,440 on their average monthly mortgage.
At the other end of the scale, Hobart is the most affordable relative to income, whilst rural and regional Tasmania has the least expensive mortgages ($1,603 per month).