With a subdued outlook, conditions remain weak in the Australian residential construction market.
Activity in the sector declined in May for the twelfth month in a row, according to the most recent edition of the Performance of Construction Index published on June 07 by Australian Industry Group (AIG) and Housing Industry Association (HIA).
Housing registered just 39.8 on the index (a reading of anything less than 50 implies a decline in activity). The apartment building sector registered just 23.4.
Worse, the value of new orders in the sector (39.5 in May) has been in decline since June last year.
Forward looking data is not encouraging. HIA expects the number of new dwelling unit starts to come in at just 143,430 this year – the second lowest total in the past eight years. Also, on a seasonally adjusted basis, the number of new dwellings approved in April (13,377) is well below the corresponding number recorded one year earlier in April 2010 (15,114), according to the Australian Bureau of Statistics (ABS).
Moreover, in dollar terms, the value of dwelling units approved in the twelve months to April came in at $39.136 billion. At this level, new work is not coming in as fast as existing work is being completed (the value of work done last year amounted to $48.425 billion).
More encouragingly, in the year to August 2011, the dollar value of construction starts is expected to be up by 16%, according to construction information service provider BCI Australia.
Still, the Construction Forecasting Council (CFC) expects gloomy conditions to persist throughout 2011. This year, the CFC says, the value of work done in the sector will grow by just 3.25% to come in at $50.008 billion.
Longer term, however, forecasters are much more optimistic. By 2013, HIA expects the number of dwelling unit starts to reach 158,670 – up 10.6% from expected levels this year. By 2013/14, the CFC expects the value of work done in the sector to have reached $59.477 billion.
State by State
Larger states are expected to fare better than smaller ones.
According to CFC forecasts:
• In New South Wales/ACT, the value of work done is expected to grow from $11.947 billion to $12.470 billion this year, on the way to reaching $16.368 billion by 2013/14.
• In Victoria, activity is expected to increase from $15.147 billion to $16.375 billion, but is expected to drop back to $15.893 billion by 2013/14.
• Queensland is expected to grow from $9.855 billion to $10.936 billion, on the way to reaching $13.660 billion.
• South Australia is expected to decline from $2.855 billion to $2.504 billion before getting back up to $2.964 billion in 2013/14.
• WA is expected to decline from $7.127 billion to $7.088 billion before bouncing back to $8.614 billion.
• Tasmania is expected to decline from $827.9 million to $685.9 million before rebounding to $865.7 billion by 2013/14.
• Activity in the NT will decline from $486.3 million to $424 million before getting back up to $608.3 billion.
In New Zealand, awful conditions experienced over the past year are expected to persist until at least the end of the year, despite the expected boost from earthquake recovery efforts.
“Dwelling consent numbers hit historic lows in early 2011”, the Department of Building and Housing says in its Building and Construction Starts – May 2011.
“This will depress construction activity until the end of 2011. Prospects of a 2012 recovery are improving, supported by the Canterbury rebuild, low interest rates and emerging evidence of reviving demand seen in rising house sales.”