New home building fell for 26th straight month in July: AIG/HIA index

Australia’s construction industry contracted for the 26^th consecutive month in July, with a steeper pace of decline recorded in house building, according to the latest Australian Industry Group (AIG) Australian Performance of Construction Index.

The construction industry failed to rebound despite successive rate cuts in May and June, with AIG director of public policy Peter Burn noting that ongoing slumps in commercial and housing construction were the biggest drags on activity.

The index, which is compiled in conjunction with the Housing Industry Association (HIA) and is based on surveys of a representative sample of construction firms, was 2.2 points weaker in July, recording 32.6 for the month.

All four sub-sectors remained firmly in contractionary mode in July: House building (28), commercial construction (26.1), apartment building (32.9), and engineering construction (39.5).

Construction industry employment also slumped, while the key new-orders sub-index was broadly unchanged – up slightly, but still contracting at 33.9.

Readings below 50 indicate a contraction in the industry with the distance from 50 indicative of the strength of the decline.

One positive development was the marked slowing in the rate of decline in apartment construction activity consistent with the recent lift in multi-unit approvals.

This sub-index increased by 11.1 points to 32.9 points.

"A slower rate of contraction in apartment building in July is a positive sign, but the reality is that it still means yet another month in which activity has declined,” says HIA senior economist Andrew Harvey

“Meanwhile the core ‘detached housing’ segment of residential building contracted at a faster rate than in the previous month.

“A total of 125 basis points of cuts in official interest rates since late 2011 is yet to have a discernible impact on residential building, not helped by cautious consumers and a policy environment that sees new housing at a considerable disadvantage to established housing due to excessive taxation,” Harvey says.

Commercial construction continued to exhibit substantial weakness, while the lower interest rate environment has yet to translate into an improvement in house building activity.

New orders in the house building sector also declined falling 2.1 points to 30.3 signalling a sharper rate of contraction in the month.

Businesses surveyed attributed the ongoing decline in construction activity to subdued demand conditions, citing low levels of new orders, project delays and weak confidence among consumers and investors.

The survey also revealed intense competition for existing contracts and difficulties in obtaining credit or funding for the lack of new construction work.

“Two bright spots in July were an easing in the rate of decline in apartment construction activity and a pick-up in the engineering construction new orders sub-index.  However, with new orders and employment levels across the industry continuing to fall, the new financial year has brought little to cheer about," says Burn.