With recent announcements of significant new developments and positive readings in the latest home sales and building approval data, the residential construction sector in Victoria appears to be on a moderate comeback trail.
In an encouraging sign for the sector, sales of new detached housing jumped by 11.6% last November, according to Housing Industry Association (HIA) – a higher increase than that recorded in any other state except New South Wales. In that same month, the total number of dwelling units approved (stand-alone houses and apartments) bounced back from shocking lows in September and October (see chart). This means that the speed at which new work is coming in is finally picking up.
Better yet, the sector will receive a further boost as the full effect of interest rate cuts in November and December starts to kick in. Whilst the November figures above reflect part of the impact from the cut of that month, none of the data as yet reflects any of the anticipated boost from December’s cut.
Moreover, the sector has received a further boost over the past month or so through the announcement of a number of significant multi-residential projects (see below).
Still, even after November’s lift, the number of new residential buildings being approved is still low compared with levels seen over the past year. This means that whilst the volume of new work coming into the pipeline has picked up, it is still at low levels (see charts). Bottom line: overall residential building conditions are likely to remain subdued – albeit with the latest trends pointing the right way.
Number of dwelling units approved- victoria
Outside of the housing, however, conditions in non-residential building remain weak. At $1.546 billion, the seasonally adjusted value of new non-residential building approved in the state during the three months to November was well below that in the three months to August ($1.690 billion) and the three months before that ($1.750 billion) (see chart). Still, with a reasonable number of healthcare, retail and office projects entering the pipeline (see below), there are some signs of life in a couple of non-residential building sectors.
Outside of building, a good number of transport and civil infrastructure projects (see below) underpin a reasonably positive outlook for activity on civil construction.
More broadly, however, general economic conditions remain subdued. As mentioned in our previous analysis, the state’s economy actually contracted in the September quarter even as the national economy grew by 1.0%. Conditions in retail trade are awful: after remaining flat all year, seasonally adjusted trade volumes shrank by 1.1% in November. At first, a drop in the state’s unemployment rate (seasonally adjusted) from 5.5% in November to 5.2% in December appears encouraging. However, closer examination of the state’s seasonally adjusted employment numbers – which have hardly moved at all in the past twelve months – reveals that the state’s labour market remains flat. In terms of overall economic performance, brokerage firm Commonwealth Securities ranks the state in the second tier (along with the Australian Capital Territory) in what it describes in its State of the States report as a ‘three tier’ national economy.
The state’s construction sector is not immune from the overall weakness in the labour market. In the three months to November, the total number of people employed in construction in Victoria amounted to 225,900, according to the latest ABS figures – down from 230,500 in the previous three months to August although up on the 215,100 people employed in the industry during the three months to November last year.
Value of non residential building approved
Key Moving Sectors
Residential
As mentioned above, conditions in residential building are heading in the right direction following strong November data and a reasonable range of new projects coming in.
Key projects:
- Channel Nine Bendigo Street (Richmond) redevelopment
- Carlton Brewery redevelopment
- Port Phillip Woollen Mills Site redevelopment (Williamstown)
- Dimmeys redevelopment (Cremorne) (mixed use)
- Wodonga Quest redevelopment (mixed use)
Office/Commercial
The commercial and office building sectors will get a decent boost through a new $220m office tower in Collins Street as well as the planned redevelopment of the Windsor Hotel.
Key projects:
- Hayward Place (Collins Street Office Tower)
- Windsor Hotel redevelopment
Retail
Likewise, a recently announced $500 million expansion of Chadstone Shopping Centre provides some signs of life for retail construction.
Key projects:
- Chadstone Shopping Centre expansion
- Little Saigon Market (Foots ray) redevelopment
Transport
Activity in the Victoria’s transport sector is expected to receive a significant boost from a good range of projects in the pipeline.
Key projects:
- Port of Hastings development (inaugural board appointed)
- Regional Rail Link (Lend Lease, Leighton, selected for development)
- Ballarat Avenue of Honour Overpass
- Melbourne Airport Terminal Four (new passenger terminal)
Civil infrastructure
As mentioned above, there are a good number of projects upcoming in the state’s civil infrastructure sector.
Key projects:
- National Broadband Network – fixed wireless component (Ericson awarded contract)
- Mildura Solar Concentrator Power Station
- Geelong Geothermal Power Project
