Gradual improvement in the volume and value of building work being done in Australia continued in the September quarter, with the non-residential sector: industrial and commercial, doing most of the work. The residential (housing) specific data, by contrast, shows a continuation of falling values, with both commencements and completions falling.
After plunging 7.7% in the December quarter of 2018, Australia’s total building work commencements have slowly lifted their way off the mat, with three successive quarters of improvements, driven entirely by growth in the non-residential sector.
Below, the red bars show that by the September quarter, 2.7% growth in non-residential building activity was joined by a third successive quarter of improving residential building activity, shown in the blue bars, which was still 3.5% lower than the prior quarter, but at least not falling as fast as earlier in the year or late in 2018. Still, overall in the September quarter, building activity declined 1.0%, but is trending in the right direction.
Fig 17
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Sticking with the non-residential sector for the time being, we can see that the value of the three main groupings of non-residential activity have each grown in the June and September quarters of 2019. Most recently, the Commercial Building sector (offices) grew a solid 8.1% in the September quarter, with Industrial buildings (factories) up 9.2% and the definitionally elusive ‘Other non-residential’ lifting a strong 24.4%. Because of the impact of individual projects – for example new mines and large factories – this aggregate data exhibits quite a bit of volatility. The chart shows this more than adequately with those early quarters displaying 60% quarter-on-quarter growth in the value of building work commenced!
Fig 18
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It is worthwhile unlocking the mystery of the sometimes-stellar performance of the ‘Other non-residential’ sector. As the chart below indicates, there are three major groupings of buildings that are ‘other’. Perhaps unsurprising, the largest of those is education buildings, the value of which was $1.343 billion in the September quarter, outdone only by their sibling healthcare buildings, valued at $1.542 billion. The third sector is short-term accommodation (hotels and the like), value in the September quarter at $1.073 billion.
These are important contributions, as set out above, to the total level of building activity in Australia. What makes education and health building expenditure more significant is the role of Government expenditure in those sectors. There would be few building activities in them that did not involve at least some taxpayer funded contribution.
Fig 19
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For all that any sustained building activity is welcome, most of our interest centres on residential building activity because for most in the forestry and wood products sectors, that is where our products go.
In the cyclical doldrums no doubt, building work commenced in the September quarter was 4.7% lower than the prior quarter, with the sole positive contributor being Alterations & Additions, as the details below show. Up 1.6%, the value of work on renos still could not lift the sector up in total, with total residential building work done 4.7% and multi-residential improving to be 3.4% lower than the prior quarter.
Fig 20
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The percentage change charts are one thing, but it is useful to examine this data on the basis of absolute numbers. At $8.332 billion in the September quarter, total residential building activity is clearly lower, but it is the multi-residential sector’s $5.610 billion that is holding the sector back right now.
Fig 21
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Looking forward, the pipeline of new residential work continued to weaken in the September quarter, but is, as much of this data shows, beginning to show signs of improvement. The value of new house work that was yet to commence was down $2.0 billion in the September quarter, but that was remarkably better than the 7.2% and 5.8% declines recorded in the March and June quarters immediately prior.
Fig 22
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As a result, the total value of work in the pipeline was $57.856 billion in the September quarter, down 5.8% on the prior year.
The data on building activity isn’t great yet, but it is definitely on the improve.
