Defying the orthodox expectations of a decline, June quarter building activity was broadly stable, with the value of new house commencements and completions softening by 0.8% and 0.5% respectively. The pipeline of work (recorded by value) rose sharply in the June quarter, adding to the good news for the second half of 2020, but with lingering doubts the result for the quarter may in fact be a stimulus fuelled ‘bubble’.
Overall, building activity data suggests a resilient housing sector – also reflected in the approvals data. Slightly more concerning, new house work under construction was down 2.3%, continuing a trend that has been down for nine consecutive quarters.
House completions are outstripping commencements, and they have been doing so since late 2018, when commencements began to decline. We can see this below, including for the first two quarter of 2020.
It is no surprise that completions have been above commencements in the first half of 2020. Builders pulling work forward, rushing to complete ahead of lockdowns (that were mainly over-predicted and ultimately under-delivered) and so on, have all contributed to the recent results above.
So that should mean the pipeline of work has been drawn forward and there is a slump due, right about now. Or soon. Or… when exactly?
In the March quarter, the value of work in the pipeline fell 2.8%, which compared to 2019, was a fairly good result. In 2019, other than the +0.8% recorded in the December quarter, the earlier quarters were steeply negative.
Off the back of the March quarter, the June quarter’s result of a 2.2% rise was a solid result, as we can see in the chart below. Still, that was not enough to stop the hollowing out of the annualised work in the pipeline. Shown on the black line, the annual value of work fell 10.6% year-ended June, compared to the prior year, totalling AUD53.296 billion.
In the June quarter, we know there was a huge amount of effort put into signing up new house contracts. Supported by the housing stimulus program – Homemaker – expectations of lower prices and plain-old pent up demand, that effort clearly worked. What is less clear is how much of the effort dragged demand forward from later quarters.
If that is the case, then the good news may be short-lived, with the dragged forward demand potentially representing a bubble.
In that eventuality, the likelihood is that just as builders rushed to complete projects early in the pandemic, they will be just as keen to slow the next phase down as they control costs and smooth revenues.
