Home building suffers steepest quarterly contraction in 20 years: ABS

Residential construction suffered its steepest drop in 20 years in the COVID-hit June quarter, and experts see further weakness ahead.

The pandemic triggered a sharp contraction in construction work over the three months to June. Picture: Supplied.

Residential construction suffered its sharpest quarterly contraction in two decades as the COVID-19 pandemic weighed on building activity over the three months to June, as experts warned of steeper falls to come.

The value of home building dropped 5.5 per cent in the quarter to $16.6bn – the lowest level since mid 2014, and the steepest decline since late 2000 – bringing the annual decline to 12.1 per cent, according to seasonally adjusted figures from the Australian Bureau of Statistics.

Overall construction work done, however, fell by a mild 0.7 per cent to $50.1bn – only a tenth of what economists had been expecting, boosted by a mining-led jump in engineering work. Construction work in the March quarter was also revised higher – from a decline of 1 per cent to a 0.7 per cent gain.

Housing Industry Association senior economist Geordan Murray said the weak three months for the home building sector could “only partially be attributed to the COVID-19 disruption”.

“Most of the building work done during the June quarter was ongoing work on homes that were under construction at the onset of the shut-down,” Mr Murray said.

The abrupt collapse in the pipeline of new sales between March and May “created a real risk that the decline in the amount of residential building work would have accelerated sharply in the September and December quarters,” he said.

The weakness in residential construction will contribute to the sharp fall in economic activity over the June quarter.

A surprisingly strong 8.6 per cent lift in private sector engineering, or infrastructure, work – likely boosted by mining projects in Western Australia and the Northern Territory – helped the better than expected overall result.

But despite commitments at all levels of government to bring forward and boost construction spending as a stimulus measure, growth in public works in the quarter declined by 3.2 per cent to $11.6bn, the ABS data showed.

That left public and private engineering work done 3.8 per cent higher for the quarter, at $21.7bn.

BIS Oxford Economics senior economist Nicholas Fearnley said the weakness in public engineering construction was likely due to the upcoming completion of the NBN rollout.

Mr Fearnley said government-funded engineering spending will climb over the 2020-21, “driven by a transportation infrastructure boom”.

The ABS report also showed non‑residential building work – such as warehouses – fell by 1.5 per cent over the June quarter to $11.8bn, but was up 6.2 per cent over the year.

CBA senior economist Belinda Allen said she expected home building to continue to decline from here, but noted “there will be some unusual variation in the components of dwelling investment”.

“A significant decline in the rate of population growth due to the drop in net overseas migration has reduced underlying demand for new housing,” Ms Allen said.

“That will result in lower new construction. But alterations and additions look set to increase due to record low interest rates and government support.”