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National Decline in Housing Projects Hints at Construction Sector Downturn, ABS Report

A nation-wide downturn in construction sector commencements suggests a slowdown in the construction industry, the latest ABS data shows.

The decline in building construction follows on from never-before-seen levels of apartment construction in Australia’s two largest states, and the downturn could see the industry return to 2014 levels of activity.

The ABS data shows that the housing market has taken a downturn in Sydney and Melbourne, having the dual effect of lowering housing prices and decreasing jobs in the sector.

The construction industryincluding residential building, infrastructure and commercialis one of Australia’s biggest economic drivers, second only to financial services.

In the year to September 2018, building construction contributed nearly $31 billion to the economy, comprising nearly 2% of the national GDP.

During the industry’s peak period of activity, from 2014 to 2018, up to 20,000 Australian dwellings were approved for construction each month, totalling an increase of 5,000 dwellings to the historical average. The bulk of the approved dwellings were apartments, which boomed during this period.

Developers have turned away from housing and apartment construction since the housing markets in Sydney and Melbourne slowed last year. The ABS data shows that approvals for new residential developments has fallen by 9% in the year up to September 2018.

In addition, construction-stage residential commencements fell by 6%, taking the biggest plunge in half a decade. This translates to a decline in residential commencements of nearly 6%, leading to 3000 less dwellings commenced for the season.

The nationwide downturn in the housing construction sector is led by Victoria, as the state accounts for 90% of the slowdown. Here, apartment and unit construction commencements have fallen by 28% for the season, in contrast to a 5% fall in housing commencements. Meanwhile, unit approvals in Victoria have dropped by 24%.

New South Wales saw a slightly less drastic downturn in activity.

It has been suggested that the role of the construction sector in relation to the strength of the Victorian economy could cause unit prices to drop significantly.

Across the country, the construction industry has had a major role in incremental job increases over the past few years. In Victoria, the construction industry has contributed 1 in 5 of the new full-time jobs added to the state.

ABS jobs data shows that Victorian construction jobs decreased by 6% in the final months of 2018, occurring simultaneously to the downturn in the Melbourne housing market.

The ABS construction and employment data indicates that a slowdown in the creation of new jobs could signal deceased migration to the state of Victoria in the coming years.

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Scott Rojko | 05 Feb 2019