Home construction falls sharply in June

A dip in house building after almost a year of expansion has reaffirmed the RBA’s decision to keep the official cash rate on hold in July.

According to the Australian Industry Group (AIG)/Housing Industry Association (HIA) Performance of Construction Index (Australian PCI), home building fell 6.8 points to 46.4.

Readings below 50 indicate a contraction in activity, while readings above 50 indicate expansion.

The dip follows three consecutive months of housing construction expansion activity.

In addition, house building activity sub-index dropped 13.9 points after ten straight months of growth, while the apartment building sub-index contracted for the second consecutive month.

AIG group director, public policy Dr Peter Burn said the withdrawal of the extra first home owner’s grant, lower employment confidence and the cumulative impact of the run of interest rate increases from last October were having a delayed effect on construction activity.

“With employment and new orders falling in other sub-sectors, June marked a turn for the worse for the construction sector as a whole,” Dr Burn said.

Meanwhile, HIA chief economist Harley Dale said higher interest rates and significant supply side obstacles were combining to stop residential recovery.

“Perennial obstacles to boosting Australia’s new housing stock, including lack of readily available affordable land, are this cycle being exacerbated by the overarching problem of a dire lack of available credit,” Mr Dale said.

“The restriction of credit is evident across low, medium, and high density residential developments, with no account being taken of the differences in structure within,” he said.

According to the Australian PCI for June, the apartment sector sub-index contracted, down 2.0 points to 44.0, while the new orders and employment sub-indexes fell to 45.7 and 44.1 respectively.

The only areas showing strength in June were engineering and commercial construction, which expanded to 52.9 points and 51.8 points respectively

Source The Adviser


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