Reading some commentary during my extended absence from work, I could have mistakenly thought the record housing cycle Australia is enjoying was the worst thing ever to afflict the nation. What bunkum.
In a race to the bottom to talk down Australia’s construction industry through exaggerated concerns about housing oversupply and downward pressure on prices, together with over-generalisation of the weakness in non-residential construction, much of the analysis in 2016 to date does our industry a grave disservice.
Let’s start with the latest Gross Domestic Product (GDP or National Accounts). The quarterly national accounts for the March 2016 quarter were surprisingly strong on the expenditure side. Yet in the lead-up to their release, there was a palpable air of pessimism in the approach to the impending growth outcome. It was almost like many people were seeking confirmation that our nation’s economy was failing. After the GFC, we have a predilection in Australia to exaggerate the negative and turn positive news upside down so as to shake out some adverse aspect which can form the focus for analysis.
Yet the Australian economy did start 2016 on a stronger note than expected and that fact should be cause for celebration. If the healthy impetus the housing industry is continuing to provide to the broader economy falls over before business investment (led by non-residential construction) meaningfully kicks in, there will still be plenty of opportunity to lament an economy singing out of tune later in the year.
Right now, here are some strong points from the latest National Accounts, none of which are inconsequential:-
- The expenditure component of GDP has only grown at a three per cent pace twice since Australia tailed off from the GFC-inspired stimulus – one of those occasions was the March 2016 quarter
- Household consumption, aided by a still healthy housing industry, grew by 0.9 per cent in the March 2016 quarter, for annual growth of three per cent. Household consumption last grew as fast as three per cent per annum in the June 2014 quarter; and before that in the September 2011 quarter.
- New dwelling investment increased by 1.2 per cent in the March 2016 quarter. This represented the 14th increase in 15 quarters. This amazing run is unsurpassed in the 57-year history of seasonally adjusted new dwelling investment measured in the National Accounts.
- Investment in renovations (alterations and additions) increased for the first time in three quarters in March this year, growing by a solid 1.2 per cent to be up by three per cent when compared to the March 2015 quarter.
Strong housing activity has propped up the domestic Australian economy like no other industry over the last four years. Key leading indicators such as ABS Building Approvals and HIA New Home Sales point to a fifth year of health in 2026/17, even given that there won’t be further growth next fiscal year. Where is that stellar story when everybody laments the downside to a housing boom? A boom that has delivered stronger outcomes for Australia’s retail, manufacturing and supply industries, before we even get to the positive employment impact.
Then there is the non-residential construction industry.
The aggregate recovery is obviously still hard to find, as the latest AiG/HIA Performance of Construction Index (PCI) demonstrates. The latest PCI result shows a contraction in the construction industry overall in May 2016. Yet tentative signs of a recovery in non-mining engineering construction are emerging. That is hardly surprising given the growing pipeline of infrastructure projects on the eastern seaboard.
The ACI Construction Monitor for autumn 2016 also reminds us of the impending potential for non-residential construction activity. The winter 2016 edition will be released on June 30.
The unique geographical and sectoral analysis contained in the quarterly Construction Monitor highlights the strength of Victoria, the recovery in Tasmania, the potential in New South Wales, and the strengthening prospect for non-residential construction activity in entertainment and recreation buildings, short-term accommodation buildings, and roads, highways and subdivisions.
There is a lot to like about Australia’s construction industry. More importantly, without the industry and the slow transition from residential to non-residential as the engine of construction activity, the Australian economy will be stuffed in coming years.
We should always recognise risk and uncertainty – I always do. Indeed at times in the past I have been accused of doing it too much. However, in the downbeat mood Australia has adopted in the post-GFC era, we should recognise the importance of Australia’s construction industry and the current and future positives it brings to Australia’s economy.
On a personal note, it is great to be back on board. Thank you to all the well-wishers.