The value of building work done in the Mach quarter was down for most sectors, but the value of work on alterations and additions grew for the third successive quarter. It is important not to have rose coloured glasses about the pre-pandemic economy, so we note that the modest growth in work on summer renovations does not diminish the fact that overall, building work was continuing to soften in the March quarter.
The general softening of the economy and the impact of a tumultuous few months clearly fed through into the value of building work done in the first quarter. On that basis, we could reasonably have expected more settled conditions (without bushfires, coming out of drought and so on) to have seen something of an uplift in the current quarter. Well, maybe that will still happen, but it would have been off the back of a pretty anaemic March quarter.
The chart below shows the decline in the value of work done on new houses was fairly modest (-0.3%) compared to the December quarter, but it was the fourth consecutive quarterly fall. Quarterly work done was valued at $8.502 billion.
More importantly, the annual figure continued to decline, with the value of work done sinking to $35.059 billion, its lowest total in more than six years.
Fig. 4
To go straight to the dashboard and take a closer look at the data, click here.
All things considered though, work done on new houses is relatively stable. It is one of the curiosities and strengths of the Australian economy that even at its lowest, new home building seems to find a way. In many respects, that is why there is so much concern about the state of the housing construction sector for the second half of 2020.
The stability of house building is not reflected for the other dwelling formats, the multi-residential dwellings, which can be seen below.
The value of work done on multi-residential dwellings in the March quarter fell 4.5% on the previous quarter, slipping back to $6.443 billion. On an annualised basis, work done fell to $27.898 billion, the lowest total in four years.
Fig. 5
To go straight to the dashboard and take a closer look at the data, click here.
As we set out above, the value of work on alterations and additions lifted 1.6% in the March quarter, reaching $2.301 billion and recording a third successive rise. As the chart here shows, there is always more choppiness in this data, due in no small part to the more discretionary nature of expenditure on renovations.
Equally, there may be an element of counter-investment in renovations. Households that choose not to make a big investment – like a new house purchase or new build – might well make a smaller investment in renovations, within the same timeframe.
It could be that has something to do with the Federal Government’s Home Builder scheme and its partial emphasis on relatively high-value renovations.
Fig. 6
To go straight to the dashboard and take a closer look at the data, click here.
The non-residential building sector was also flat (0.0%) in the March quarter, with activity valued at $11.677 billion. As the chart shows, that flat lines a long run of annualised growth that while solid is not quite as impressive as the chart indicates.
Fig. 7
To go straight to the dashboard and take a closer look at the data, click here.
Greg Jericho, writing in The Guardian, pulled this data apart further and showed that a couple of key sectors appear to be in structural decline. Engineering construction as the chart below demonstrates, has fallen to its lowest point since 2007, and building work is down to December 2015 levels.
Fig. 8
Jericho makes the point that the long-term role of construction in the Australian economy is declining. From 2000 to 2009, the construction sector was the biggest contributor to economic growth in Australia – bigger than mining and finance for instance.
We can see this in the chart below, which sits alongside Jericho’s comments:
“The decline of the construction sector is a major story of the past decade.
“The investment mining boom of the 2000s was as much a boom for construction as it was actual mining. But while the mining sector continues to increase production, the construction industry has flatlined for six years:”
Fig. 9
Australia’s construction sector accounts for about 7% of the total economy in its own right, reaching into every community, employing 9.2% of the Australian population and having a long tail of activity throughout the economy. But even as employment in the sector has gradually risen, as Jericho shows us below, the sector’s share of total production has been in decline for six years.
Fig. 10
The health of the building and construction sector is a serious issue for the Australian economy, at pretty much all levels. Little wonder a major stimulus package has been announced. Whether that package is adequate to make the real difference the economy will require is uncertain, but the data here shows just how much it is needed.
