As new multi-billion dollar resource projects continue to roll in, resource construction activity in Western Australia continues to go from strength to strength.
But with new work in the state’s housing market at three year lows, the outlook for residential construction activity appears to be very weak.
As noted in previous reports for the state, engineering construction activity in Western Australia is booming. Driven by the start of the Wheatstone LNG Project, the seasonally adjusted value of civil construction work done throughout the state surged to $10.517 billion in the three months to September – more than one third higher than at any other time on record.
Better yet, new multi-billion dollar projects continue to roll in. Last month, North West Venture participants gave the green light for its $2.5 billion Great Western Flank Project. In that same month, WA Environment Minister Bill Marmion gave conditional approval for Aquila Resources’ $5.77 billion West Pilbara iron-ore project. Asia Iron Australia, too, is targeting the current quarter for final sign-off and construction start for its Extension Hill Magnetite Project.
Conditions are much different, however, in the state’s building sector. Despite last year’s interest rate cuts, the seasonally adjusted number of approvals for new stand-alone houses was lower in each of October, November and December last year than for any other months since March 2009. Indeed, whilst stand-alone housing approvals lifted a bit in December (see chart), November’s result was the lowest on record since April 2001. The picture is similar when apartments and other multi-residential construction is added in – overall dwelling approval numbers were lower in both November and December than at any other time since March 2009. Bottom line: new residential work is coming in much slower than before.
Hopefully, residential building will pick up in the state once the full impact of the November and December rate cuts kicks in. Two consecutive months of increase in seasonally adjusted new home sales in the state during these months provides some glimmer of hope.
Outside of housing, conditions are better in non-residential building, where new work is coming in reasonably fast. At $2.055 billion, the seasonally adjusted value of non-residential buildings approved over the second half of last year was virtually unchanged when compared with first half ($2.047 billion), but was up by 15.74% when compared with the $1.732 billion recorded in the second half of 2010.
As noted in previous reports, thanks to the engineering boom, the state’s economy expanded at a record pace in the September quarter and capital expenditure levels are extremely strong. At just 4.3% (seasonally adjusted), the state’s unemployment rate is extremely low. Moreover, outside of housing, there are signs that the strong resources sector is feeding through to non-mining areas of the economy. Retail trade – flat in other states – rose by an aggregate of 5.3% in the six months to November.
Perhaps surprisingly, the latest data suggests weakness in the overall construction labour market. In total, the number of people employed in the state’s construction industry during the three months to November last year amounted to 119,400 (not seasonally adjusted) – down from 136,400 for the same period last year.
These numbers, however, may be partially misleading since some employed in resource construction may have been counted by the ABS as ‘mining’ rather than ‘construction’ (staff numbers in mining were up from 87,500 to 104,400 over the same period).
Key Moving Sectors:
- Greater Western Flank Project
- Orebody iron ore mine development (BHP)
- Extension Hill Magnetite Project (Asia Iron Australia)
- West Pilbara Iron Ore Project (Aquila Resources)
- Sino Iron Project (CITEC)
- Fletcher Finance Project (Santos)
- Jack Hills Expansion Project
- Karara Iron Ore Development (Gindalbie Metals)
- Coburn Zircon Project (Gunson Resources)
- WA Equus Deepwater Gas Project
Outside of mining, offices and commercial buildings are the only sectors with any significant activity since our last report.
- Queens Riverside Tower (Fraser Property Australia)
- Kings Square Project (Leighton Properties)