Biggest residential building slump in a decade

By Australian Property Investor, 24 November 2010

Residential building slumped 6.1 per cent in the September quarter, making it the biggest quarterly fall in nearly a decade. Construction work also fell 2.1 per cent, down to $41.4 billion.

Commsec says the hangover effect from the government stimulus and considerable growth in property prices over the past year contributed to weaker residential demand and activity.

Commsec says the long-term outlook is still positive, and overall construction costs increased by 0.7 per cent, the biggest quarterly increase in two years. It believes improvement in economic conditions should support private sector activity in the medium term, and businesses are dusting off plans that were sidelined during the global financial crisis.

However, companies are still unwilling to fully commit until they’re confident a strong recovery is taking place. That attitude has been confirmed in the latest round of data. Residential construction recorded significant weakness, but there is lots of planning for the future. Work yet to be done is holding $42.4 billion, down 5.9 per cent from the record highs reached in the March quarter.

Commsec says the Reserve Bank of Australia (RBA) is unlikely to be concerned by the slide in construction activity, because there’s a healthy amount of work in the pipeline. However, recent rate rises could put a dampener on construction, so the RBA should leave interest rates on hold for a couple of months.

Commsec says overall, the outlook for construction industries is favourable, and the key challenge is to keep cost pressures under control. It says infrastructure projects, fast population growth and the booming mining sector will buoy activity in the long term.