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Massive pipeline of building work means houses taking longer to build

 

Latest data confirms the size of the Australian building pipeline at the end of 2021, and some unpublished data demonstrates house completion times have pushed out as a result. Houses ‘Under Construction’ lifted to a new record 101,022, up 2.6% on the prior quarter. The impact on building times means houses are taking an average 7.4 months to build, up from 6.3 months in March 2019.

For those seeking to analyse housing construction activity, the ABS’ quarterly ‘Building Activity’ data is pretty much the gold standard at a national level, because it allows a view of what work is available and likely to be keeping the supply chain busy over the short to medium term.

Released late April, the December quarter data showed New House Commencements for the quarter at 32,424, down from the June quarter peak of 42,904. However, as Completions remain below Commencements, we continue to see an increase in the number of houses Under Construction.

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As the volume of this pipeline of work increases, so also does the value of that work. At the end of 2021, the value of Houses Under Construction was a truly enormous $91.27 billion as we can see below. In theory that averages out at around $900,000 per house, but that is too simple a calculation and needs to be treated with immense caution.

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One very clear impact of this increasing pipeline of work is that it is taking longer to build each house.

The ABS are releasing data on housing completion times on an annual basis, with the December data release. However, liaison with the ABS provided a more insightful quarterly breakdown of the completion time data.

At the end of 2021 it was taking 7.4 months to build a house, compared to the low point in the last cycle (March quarter 2019) of 6.3 months and is now at levels last seen in the post GFC boom. The difference from this boom is that because the pipeline has so much work left to do, building time ‘blow outs’ are likely to increase and will certainly linger, rather than peaking and crashing.

We can see below the confluence of the two factors.

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The December data release also coincides with the publication of the annual home size report. In the period 2020-21 the average floor area of new houses for Australia was 230.4 m2, down 2.7% on the average 236.7 m2, in the previous financial year. This also compares with research undertaken by the FWPA on timber usage in residential construction for the period 2017-18 which showed the average floor area was, as set out below.

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Here we can see the charting of the ABS’ data series.

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So, Australian house sizes are reducing slightly on average, but it is questionable whether that decline in size has any impact at all on the time it takes to build a dwelling and therefore, the amount of work that will be left residing in what is the largest pipeline of building work ever experienced in Australia.

 

Posted Date: May 17, 2022

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