The Urban Developer
AdvertiseEventsWebinarsUrbanity
Industry Excellence
Urban Leader
Sign In
Membership
Latest
Menu
Location
Sector
Category
Content
Type
Newsletters
Urban Leader Awards Logos RGB White
NOMINATIONS CLOSE SEPTEMBER 12 RECOGNISING THE INDIVIDUALS BEHIND THE PROJECTS
NOMINATIONS CLOSING SEPTEMBER 12 URBAN LEADER AWARDS
LEARN MOREDETAILS
TheUrbanDeveloper
Follow
About
About Us
Membership
Awards
Events
Webinars
Listings
Resources
Terms & Conditions
Commenting Policy
Privacy Policy
Republishing Guidelines
Editorial Charter
Complaints Handling Policy
Contact
General Enquiries
Advertise
Contribution Enquiry
Project Submission
Membership Enquiry
Newsletter
Stay up to date and with the latest news, projects, deals and features.
Subscribe
ADVERTISEMENT
SHARE
1
print
Print
OtherTed TabetMon 05 Sep 22

Construction Sector Weakened by Rising Rates

Australian PCI®: Construction sector contracts

Construction activity has softened further as material costs continue to collide with higher interest rates, dampening demand for labour.

The latest Performance of Construction Index, a survey-based monthly barometer of activity produced by Ai Group and the Housing Industry Association, showed home building dropped for a fourth consecutive month in August.

Activity in housing and apartment construction fell 1.3 and 12.5 points respectively compared to July.

HIA economist Tom Devitt said higher interest rates along with uncertainty about future increases reduced demand across house building as more builders reported a drop in enquiries.

Four back-to-back rate rises, sparked by a shock 6.1 per cent inflation result, have meant the cash rate has risen from a record low 0.1 per cent to 1.85 per cent in just 12 weeks.

Characterised as the RBA moving to an inflation-fighting footing, it is the most aggressive tightening cycle in almost 30 years and is a long way from the outlook in late 2021 of rates on hold until 2024.

“The RBA’s cash rate increases have brought an end to the housing boom,” Devitt said.

“Climbing borrowing costs are compounding the costs of construction that have surged on the back of land, labour and materials shortages.”

“Fewer people are visiting display villages, sales volumes have dropped, and there is less lending for the purchase of new and existing homes.” 

Australian Performance of Construction Index 


Index (August)Change from last month12-month average
House Building33.3▼-1.3▲44.5▼
Apartments37.5▼-12.5▼45.8▲
Commercial45.8▲2.9▲50.5▲
Engineering59.1▲13.3▲56.8▲
Activity46.2▲3.5▲50.6▲
Employment47.7▲-5.3▼56.0▼
New Orders51.0▲7.9▲52.9▲
Supplier Deliveries45.6▲3.4▲41.6▲
Input Prices92.6▼-1.2▲95.3▲
Selling prices68.5▲-18.6▲80.8▼
Average Wages77.6▲1.2▲76.9▲
Australian PCI47.9▲2.6▲51.3▲

^Source: HIA/Ai Group - August 2022

The sector as a whole lifted fractionally, by 2.6 points to 47.9—a reading above 50 points indicates that construction activity is generally expanding; below 50, it is declining. 

New orders rose by 7.9 points to 51 points, following two months of contraction while construction prices eased again, dropping slightly to 92.6—but remained very high after peaking in June.

Average wages, which have been under significant pressure for well over a year, rose again after easing in July while capacity utilisation lifted by 2 percentage points to 82.6.

Record low-interest rates and government stimulus sparked a wave of construction during the pandemic. Between June 2020 and April 2021, building approvals jumped from about 14,000 a month to more than 20,500.

Since April, approvals have been declining and official figures last week revealed that building approvals fell sharply over July, tumbling a further -17.2 per cent.

The sharp decline was led by a lack of council approvals for units, especially large complexes, with a -43.5 per cent fall in private sector apartments recorded. Approvals for new houses remained flat, rising 0.7 per cent.

There was also a drop across all categories year-on-year with all housing types down by -25.9 per cent, houses down by -17.4 per cent and other housing types down by -43 per cent, according to the ABS’ seasonally adjusted figures.  

New home sales fell -13.1 per cent in July, led by the -15.5 per cent drop in Queensland, -15.3 fall in New South Wales and a -13.5 per cent decrease in Western Australia.

The value of new loan commitments for housing also fell -8.5 per cent to $28.4 billion after a fall of -4.4 per cent in June.

Master Builders chief executive Denita White said it was up to the federal government to align all its economic levers to ensure that the economy was pulling in the right direction.

“In the residential building sector builders who have borne the brunt of inflationary pressure for many months now face reduced demand for new homebuilding,” White said.

“We understand the severity of the challenges we face and the need to normalise monetary policy, but interest rates are a blunt instrument, and we don’t want to see a situation where the Reserve Bank is left on its own to tackle inflation.”

ResidentialAustraliaPolicyConstructionConstructionPolicy
AUTHOR
Ted Tabet
The Urban Developer - Journalist
More articles by this author
website iconlinkedin icon
ADVERTISEMENT
TOP STORIES
Stockland bumps up its apartment pipeline in melbourne and sydney
Exclusive

Stockland Re-Enters Density in $5bn Apartment Play

Renee McKeown
4 Min
Woolloongabba Precinct Vulture St
Exclusive

Brisbane Developer in Cross River Rail Compensation Tussle

Clare Burnett
4 Min
The Mondrian Gold Coast hotel's food and beverage is driving profits
Exclusive

Touch, Taste, Theatre: What’s Driving Mondrian’s Success

Renee McKeown
6 Min
Fortis’ display suites are designed as brand environments first, with tactile details and curated design to build buyer confidence before project specifics.
Exclusive

Relevant or Redundant: Will Tech Kill Display Suites?

Vanessa Croll
7 Min
Exclusive

Missing Heart: Why The Gold Coast Needs a CBD

Phil Bartsch
7 Min
View All >
South Melbourne social housing precinct
Affordable & Social Housing

South Melbourne Housing Precinct Revamp Takes Next Step

Leon Della Bosca
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
Aerial view of Caboolture and Bruce highway to Brisbane with Bribie Island Road crossing, Queensland, Australia
Policy

Queensland’s $2bn Push Opens New Housing Front

Vanessa Croll
First projects named in a statewide plan to fast-track supply, including thousands of homes in a major growth region…
LATEST
South Melbourne social housing precinct
Affordable & Social Housing

South Melbourne Housing Precinct Revamp Takes Next Step

Leon Della Bosca
2 Min
JQZ Parramatta EDM
Residential

JQZ Plots 10-Storey Addition to Parramatta ‘Auto Alley’ Plans

Clare Burnett
3 Min
Aerial view of Caboolture and Bruce highway to Brisbane with Bribie Island Road crossing, Queensland, Australia
Policy

Queensland’s $2bn Push Opens New Housing Front

Vanessa Croll
2 Min
The Adelaide purpose built student accommodation market is about to increase by 1058 beds with the State Commission Assessment Panel supporting two towers in the making.
Student Housing

Highrise Approvals Add 1000-Plus PBSA Beds in Adelaide

Renee McKeown
3 Min
View All >
ADVERTISEMENT
Article originally posted at: https://www.theurbandeveloper.com/articles/construction-sector-weakened-by-rising-rates