Australia's Construction Surprise Boom Set to Stick

According to Domain.com, it will be some time until Australia’s construction boom cools, with new figures showing building work valued at a record $29.9 billion.

The June-quarter saw an increase of 2.5% over the March-quarter figure and a larger increase of 6.5% over the year to date.

These results have been a surprise to many, after several forecasts of softer increases being predicted after a weak result in the previous quarter.

This rise has been driven by residential construction, which according to Domain.com, increased by 3.1 per cent in the June-quarter. Detatched-homes building work was worth $9.1 billion and units accounted for $8.1 billion.

“It’s a very strong result for the quarter – a lot of forecasters were anticipating construction would fall away quite quickly at the peak in 2016,” Geordan Murray, senior economist at the Housing Industry Association, said.

“But we’re seeing the level of activity maintained, and it’s proving to be a resilient cycle for residential building,” Mr Murray said.

Mr Murray said that the total residential construction work was valued at $19.3 billion, was a preliminary figure that underestimated the true value of contribution to GDP.

Total construction work, including residential, non-residential and engineering, in Victoria and NSW were the main drivers of that growth.

Mr Murray said home renovations were weaker than other residential construction, down to $2.1 billion. Which is a decrease of 3.1% in the past quarter and 4.6% in the year to date.

“That’s probably indicative of the fact that we’re continuing to see the slow growth of household income,” he said.

“There’s a lot of residential development happening in the last few years and that involved people purchasing off the plan and that’s due to the delays of when an estate releases free sales through to when construction begins.”

Mr Murray expects that construction activity will continue to filter through sales from 18 months to two years ago. Therefore, the value of construction work will remain high for the next 12 months.

The strong results  follow a strong rebound in building approvals in June.
AMP Capital chief economist, Shane Oliver said the surprisingly strong results will not last.

“It’s certainly a lot more than I was expecting but that’s probably not going to be sustained because approvals might start to fall down again and you’re seeing a reduction in the crane count,” Dr Oliver said.

While he didn’t expect the rate of growth to last, Dr Oliver said it would help the economy for the time being. “The bottom line is it will help the economy [keep] going … there was a lot of concern the economy will deteriorate.”