Despite approvals slowing, the pipeline of building work expanded in the June quarter, with houses under construction lifting 0.9% to 104,226. The pace of building continues to slow, with starts down 0.8% to 30,926 houses, but completions were 6.3% lower, falling to 28,898 houses. In the June quarter, houses were taking a record 8.5 months to complete, up from 7.8 months the prior quarter.
As the chart here shows, the remarkable and record pipeline of building work continued to expand in the June quarter, with completion rates continuing to stagnate. The risk is the pipeline will continue to grow as the pace of work continues to slow, to the point where contracts and prices become sufficiently old to be undeliverable.
Australia has an enviable record of building what it approves at a far higher ratio than many other countries, especially the USA. That brings with it some benefits for the global supply chain: predictability being key among them. A known volume of work for the future, sitting this side of the horizon, is one way that a small and distant market like Australia can attract suppliers. The longer build times push out, the less predictable the building – and therefore supply – cycles will be.
The second chart shows just how much the average build time for new houses has blown out over the course of the housing stimulus experiment.
Unsurprising given the context of slowing building rates, the value of work on new houses that has commenced but not been completed lifted 4.2% to $103.48 billion as the chart below shows. This is not merely a factor of the number of dwellings still to be built. It is also relevant that the cost of building materials continues to grow.
It is now three years since there were consecutive quarters in which the value of building work in the pipeline declined.
The other risk that a huge pipeline of work presents is that costs are already on an upwards cycle. As Michael Bleby has pointed out in the Australian Financial Review, housing construction is competing with other construction and other industries for labour. Wages and contractor payments will rise in the construction sector. Materiel costs are also rising, as the industry is well aware. That could price some jobs out of the pipeline as households and builders rethink their strategies, right around the time approvals for more new dwellings are being similarly priced out.
A huge pipeline of work is probably a better problem to have than an insufficient pipeline, but better still would be to have demand and supply a lot closer to balance. That eventuality is a long way off!
