Housing recovery looking “shaky” on weak construction activity

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Construction activity weakened in March, with the industry contracting slightly after two months of growth, a report says.

The Australian Industry (AI) Group-Housing Industry Association (HIA) performance of construction index fell 4.1 points to a seasonally adjusted 48.7 in March.

The number is below the 50 level which separates expansion from contraction.

Falls in new orders and activity tipped the index below the critical level.

The apartment sub-sector contracted for the second month in a row in March, and engineering construction also lost ground.

House building was flat after eight consecutive months of expansion.

Commercial construction was the only sector to continue to grow, expanding modestly for a third consecutive month.

“Firms noted that operating conditions remained difficult, with tight credit conditions, subdued client demand and project delays resulting in intense competition to secure existing contracts,” the PCI report said.

“Residential builders also indicated that higher interest rates and weaker first home buyers demand had dampened both activity and incoming new business during the month.”

The report showed activity and new orders declined in March following two consecutive months of growth, which was reflected in a slower increase in deliveries from suppliers and employment.

Housing Industry Association (HIA) economist Ben Phillips said the residential construction numbers for houses and apartments confirmed a “worrying downward trend” for the new homes sector.

“The strength of the nation’s housing recovery is looking shaky,” Mr Phillips said.

“Industry hopes for a sustained and necessary recovery are fading under the impact of higher interest rates and continued pressure from credit and land constraints”.

Australian Industry Group public policy director Peter Burn said the operating environment remained difficult in March with tight credit conditions, subdued client demand and project delays having adverse impacts on construction companies.

“This is reflected in March’s Australian PCI,” Dr Burn said.

“The further increase in official interest rates announced on Tuesday is likely to dampen activity at a time when new orders are already falling in all of the sub-sectors other than commercial construction.

“The fall in new orders in the house building and apartment sub-sectors comes at a time when there is already a shortage of housing and a growing gap between demand and supply.”

The report found problems accessing credit, subdued client demand and project delays were “hampering growth”.

It showed that employment in the industry remained “relatively stable”.

AAP

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