Australia’s largest home building boom appears to have peaked, but the pipeline of work remains at record and enormous levels. Data for the September quarter shows that new house commencements fell 16.5% in the September quarter – the largest fall in more than two decades – but still resulting in a very solid 35,827 commencements for the quarter.
Because completions totalled 28,915 dwellings in the same quarter (up 6.2%), the amount of work in the pipeline still expanded by almost 7,000 dwellings or 20% of the quarterly commencements.
As a consequence, as the chart shows, new houses under construction kept growing from 90,284 in the June quarter to 98,405 in the September quarter, up 9.0%. That amounts to something like nine months of building work for the economy, even if no new work was booked while the pipeline was being built out!
All the work in the pipeline will support the industry through 2022 regardless of what might unfold in the wider economy.
The physical pipeline feeds into the value of work in the pipeline (work yet to be done and not yet commenced), which in the September quarter was $24.52 billion, up 9.1% on an annualised basis to $81.65 billion.
In a typical quarter, more of the pipeline would have been built, but as we know, the September quarter was not typical. As Michael Bleby adroitly pointed out in the Australian Financial Review, the Omicron lockdowns reduced the amount of work that could be undertaken and therefore commenced and completed. We cannot truly measure the effect, but its an all too familiar situation.
The September quarter constraints also impacted the non-residential sector. Commencements declined from $16.25 billion in the June quarter to $13.32 billion in the September quarter, a fall of -18.5%.
The sole positive in the non-residential sector was Industrial buildings, which has enjoyed two successive quarters of growth, increasing to $2.97 billion in the September quarter, a gain of 15.3% on the June quarter, as the chart shows.
It has been the case for some time now, but there is little doubt that the Australian building pipeline is large enough now to sustain the entire industry for 2022. In many respects, in its capacity constraints, it is overly busy and has too much work. That’s not the worst problem to have, but it poses management and resource challenges.
The situation also poses one giant question, in two big parts: when will it end and how deep will the decline be?
