The value of Australia’s alterations and additions declined 3.6% in 2017, compared with 2016, falling to AUD8.378 billion fore the full year. The downturn in activity looks likely to accelerate over 2018, with the value of work done in the December quarter down 8.3% compared with the December quarter of 2016.
This is displayed in the chart below, which demonstrates consistency in alterations and additions activity over the course of much of the last six years.
To go straight to the dashboard and take a closer look at the data, click here.
However, not all of the data is pointing down for alterations and additions. Latest data shows that over the course of the last year, loans for alterations and additions rose solidly, by 5.4%, compared with the prior year. Isolated from all other data, we can see the value of loans in the chart below.
To go straight to the dashboard and take a closer look at the data, click here.
Loans are issued ahead of expenditure, so it may be that the softness in the value of work done in the second half of 2017 has arisen because of loans issued a year earlier. If that is the case, we can reasonably anticipate the rising loans for alterations and additions to flow through to higher levels of building activity later in 2018.
So, in that vein, it is relevant to consider the two data series together. It is important to note this is a hybrid chart, combining lending on the left hand side with the value of the building work done on the right hand side.
It is observable that the chart has only limited correlation and that as the value of building work has declined, the proportion of that funded by loans appears to have risen. It is conceivable that the period when loans were relatively low, through to the end of 2014, that alterations and additions were being funded without as significant a contribution from lending – either from savings in bank accounts, or savings held in advance payments in mortgages.
That is not conclusive, but it does go some way to explaining why the two relevant data series are operating in this divergent manner. If the scenario plays out, any future decline in the value of loans for alterations and additions will almost necessarily flow through to a sharp decline in the value of work done.
If nothing else, that will be food for thought.
