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Housing pipeline turns the corner ever so slowly

Like a gigantic vessel in a vast ocean, Australia’s building activity appears to have commenced what is expected to be a slow and ponderous turn around. Building activity levels appear to be returning to stability with the pipeline of work negative for the first quarter since the March quarter of 2020.

After seven long quarters of pipeline growth, the value of work in the pipeline for new houses turned down 1.5%, with $25.91 billion of new work. On an annualised basis, the chart below shows there is still an enormous $99.18 billion of work in the pipeline. That will only come down when there is a significant turn in the quarterly data.

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The June quarter value data was reflected in the lower housing commencements (30,145) compared to higher housing completions (31,145) during the quarter. Despite that change, the annualised data still ticked up, with 102,584 houses under construction in the June quarter, a rise of 0.3% on the March quarter.

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We can look at this data in several inter-related ways.

First, the quarterly data shows new housing activity is declining, in that it is growing more slowly now and is likely to continue to slow.

Second, with more than 100,000 houses alone still under construction in the March quarter, that is around a full year of work in the pipeline, even before any additional building work commences due to ongoing approvals and sales of new housing.

Third, this is just houses – not townhouses – and it is just new work, not alterations and additions.

In the next chart, we can see that building work commenced in housing in total, turned down a very modest $0.9 billion (to $89.2 billion) on an annualised basis in the March quarter, with houses down $0.8 billion, multi-residential flat and alterations and additions down $0.3 billion for the quarter.

This trend was also reflected in the AIG/HIA performance of construction index which for houses, apartments and commercial fell 4.3%, 4.5% and 8.4% respectively in June, compared to May, as Tom McIlroy wrote in the AFR on 9th July.

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Where does that leave us? Overall, the construction ship is slowly turning, but for most forms of housing at least, is still adding to the total pipeline of work.

We can see that in the chart below, which shows the average completion time continues to push up – now reaching 7.77 months (end March), up from 7.35 months (end December). In delivering this information, the ABS officer commented the decline in commencements in the March quarter is linked to builders operating at capacity and thus being unable to commence new work. That means there is yet more demand sitting outside the ‘houses under construction’ measure – queued up and ready to go you might say!

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This is not a forecast, but there must be at least a full year of heightened demand for building products left to run before the ship has fully turned around.

 

 

Posted Date: July 29, 2022

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