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BFCSA: House-building contracts at fastest pace in over six years in February

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House-building contracts at fastest pace in over six years in February

Australian Financial Review Mar 7, 201910.44am

Michael Bleby

 

House building contracted at its fastest pace in over six years in February, as the pipeline of new orders and prices declined amid lending constraints and weaker confidence.

The Performance of Construction Index, based on a survey of industry managers, dropped 0.6 of a point to 35.2 for house building activity last month. A reading above 50 indicates growth, while a reading below 50 shows contraction. The further the number from the 50-median level, the faster the pace of growth or contraction.

New orders in detached house building - a leading indicator of activity - also declined for a seventh straight month and suggest further weakness to come in the sector. Official figures earlier this week showed building approvals of new standalone houses slipped to 119,053 over the 12 months to January, the weakest total since November 2017.

House-building matters, particularly as high-rise apartment construction, which has buoyed the construction industry for the past five years, faces an abrupt end when the current slew of projects approaching completion meet their end. Weaker-than-expected construction figures in the December quarter, and Wednesday's anaemic GDP report showing the slowest rate of household consumption since 2013 raise the prospect that demand for new housing will weaken further.

"Investors and owner occupiers are delaying purchase decisions as the credit squeeze plays out and interest from foreign investors has waned," said Tom Devitt, an economist with the Housing Industry Association, which produces the monthly index with industry organisation Ai Group.

"Residential building has been pivotal in driving activity in the rest of the economy for the past five years. Over the coming years as home building activity slows the sector will be reliant on the resilience of the broader economy."

Earlier this week, the HIA's own half-yearly forecast said it expected new housing construction to trough in the year to June 2021, but a weaker-than-expected economy could force it to revise its forecast lower.

Apartment building further contracted last month, with the sub-index measuring that sector ticking up just 0.2 of a point to 28.6, indicating a slightly slower pace of contraction from January.

New national apartment completions are expected to drop by almost one-third this year to 16,000 from 23,200 in 2018, as a consequence of the regulator-driven curbs on mortgage lending and conditions remining tight in the short-term, JLL's Q4 2018 Residential Apartment Markets report says.

Commercial construction activity fell for a seventh month, and new orders also weakened, but the report said this was likely to pick up.

"The demands of growing population and a relatively healthy pipeline of work in key commercial and social project areas (including offices, industrial premises and education buildings) will be key factors supporting overall activity in the year ahead," it said.

Infrastructure work also declined for a third month, with that sector's sub-index falling 1.4 points to 43.9.

"This reflects a shortfall of new contracts to replace completed work on infrastructure projects," the report said.

"It is likely to also be related to delays to some stages of existing projects or a temporary lull in construction work while planning, design and other pre-construction tasks are undertaken for new projects."

 

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