Apartments Driving Building Growth

The national construction industry expanded for a third consecutive month in October, driven by the fastest pace of growth in apartment building activity recorded in the 10-year history of the Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI®).

The overall index climbed slightly by 0.2 points to 52.1 to remain above the 50-point level separating expansion from contraction.

Ai Group Head of Policy, Peter Burn, said, “The strong run of apartment building activity continued in October and commercial construction edged closer to expansion. In contrast, house building slipped into negative territory and engineering construction remained in contraction. The higher level of activity in the apartment sub-sector was sufficient to extend the overall construction sector expansion into a third month.

"Expectations of further growth in the months ahead will be encouraged by the higher levels of new orders recorded for the apartment, engineering and commercial construction sub-sectors. This is a further sign of the long-awaited broadening of the base of economic growth.”

HIA Chief Economist, Harley Dale, said, “The Australian PCI® result for October reinforces the important role that residential construction is playing in driving broader economic activity.

"The strong findings for apartments are consistent with the considerable pipeline of activity, while the overall trajectory for detached houses signals healthy construction in 2015/16, albeit off the cyclical peak of last year. That is, however, a sharp monthly decline in the house building sub-index and some reversal will hopefully come through in November.

"There are signs emerging of a broadening strength to the construction industry – the results for the commercial and engineering construction sectors are encouraging.”

Australian PCI - Key Findings for October:

• The Ai Group/HIA Australian Performance of Construction Index (Australian PCI® ) expanded for a third month in October, at a rate broadly unchanged from September (up 0.2 points to 52.1).

• The construction activity sub-index contracted slightly in October (down 1.2 points to 49.5) after two months of expansion, but new orders (up 1.1 points to 53.5) and employment (up 2.3 points to 54.9) both expanded for a third month. Supplier deliveries dipped slightly into negative territory (down 2.5 points to 49.6).

• Apartment building activity underpinned the broader industry’s positive result, lifting again to record its fastest pace of growth (up 9.2 points to 72.4) in the ten-year history of the Australian PCI® . House building, however, contracted for the first time in five months, falling sharply from September’s 11-month high (down 9.8 points to 47.0).

• Engineering construction contracted for a 16th month, but at a slower rate attributed to a boost in infrastructure work on the east coast (up 7.5 points to 44.1). Commercial construction moved closer to stability as respondents noted stronger activity in various key building categories (up 0.9 points to 49.0).

• Growth in the wages sub-index continued in October, rising 1.7 points to 63.2, while the pace of growth in input costs eased slightly (down 1.7 points to 68.9). The gap between the two pricing series remains significant as selling prices continued to contract, if at a slower rate (up 3.2 points to 47.6).