Residential Construction Hits All-time High

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Tuesday, December 1st, 2015
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Residential construction has hit an all-time high, a sign that the sector will soon become the biggest driver of economic growth in Australia.

The value of residential work done during the September quarter rose two per cent to a record $15.5 billion thanks to a boom in apartments, the Australian Bureau of Statistics found.

But the rise in residential work wasn’t enough to offset a downturn in engineering construction, pushing the overall result for total work completed during the three-month period down by a worse-than-expected 3.7 per cent.

CommSec chief economist Craig James said a rise in dwelling construction should offset the downturn in mining and resources investment in building projects.

“Building – residential and commercial – hasn’t yet taken over from engineering in terms of total work, but it’s not far away,” he said.

Mr James said the Reserve Bank would be pleased about the construction sector’s performance.

“Overall activity is correcting as expected and adjusting to the new realities,” he said.

“While inflation in the home building is higher than in the rest of construction and higher than consumer prices, that is to be expected given soaring activity.”

During the quarter, the value of apartment construction work completed rose 5.3 per cent and was up by 19.5 per cent for the year to September.

“I expect that to continue to lift in small amounts over the next few quarters but then from say 2017 you’d expect that to no longer be increasing and start to decrease,” NAB economist Tapas Strickland said.

The resources-rich state of Western Australia had the largest fall in construction during the quarter, down 8.5 per cent, followed by NSW which dipped 3.4 per cent.

Mr Strickland isn’t worried about the weakness in Australia’s largest state, seeing it only as a blip.

“This does not concur with strong residential and infrastructure spending and a relative absence of mining investment,” he said.

“We would expect a substantial bounce back next quarter.”

The surge in housing construction coincides with the downturn in the resources sector.

Engineering work done, which includes mines, roads, bridges and the like, plunged 7.3 per cent in the quarter.

The fall followed a 5.5 per cent rise in the June quarter, which got a big boost from projects carried out in Western Australia.

Work completed on the massive Gorgon gas project and Gina Rinehart’s $10 billion Roy Hill iron ore project were seen as a big contributors to the June surge.

SEPT QTR CONSTRUCTION FIGURES FALL

  • Total construction work done fell 3.6pct
  • Engineering work done fell 7.3pct
  • Building work done up 0.6pct

Of that:

  • Residential up 2.0pct
  • Non-residential down 1.9pct
(Source: Australian Bureau of Statistics)
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