Economy

Housing construction activity contracts for 31st consecutive month: AIG/HIA index

Larry Schlesinger /

House building activity declined at its steepest rate in three months to December amid weaker new orders as the overall construction sector continued to contract – albeit at a slower rate – for the 31st consecutive month.

The seasonally adjusted Australian Industry Group/Housing Industry Association Australian (AIG/HIA) Performance of Construction Index (PCI) increased by 1.8 points in December to 38.8, still well below the 50 points level that separates expansion from contraction.

The December index update shows that house building conditions weakened, with the sector’s activity sub-index falling by 6.1 points to 34.7 to signal a sharper rate of contraction in December.

New orders in the house building sector declined by four points in December to 33.9, compared with new orders index increasing by 8.3 points to 42.6 across all sectors of the construction industry.

The increased rate of contraction reflected a steeper decline in new orders, “which is of concern for the sector’s outlook”, noted the AIG and HIA.

Apartment building activity was also more subdued in December, with the sub-index declining by 2.4 points in December to 40.1.

In contrast, commercial construction activity contracted at its slowest pace in just over two years, while the rate of decline in engineering construction again eased during the month.

AIG director of public policy Peter Burn says construction activity ended the year largely as it began it, “deeply entrenched in negative territory”.

While he says there are some signs of more positive conditions for 2013, he describes as “worrying” the steeper decline in new orders within the house building sector, with “low consumer confidence continuing to weigh heavily on demand”.

HIA chief economist Harley Dale says the December update for housing is disappointing.

“Detached house building represents well over 60% of all residential construction activity in Australia, and the December 2012 Australian PCI points to a steeper decline in activity and new orders, not to mention employment,” he says.

“That is a concerning update, which aligns with other indicators suggesting a deterioration in pre-existing weak conditions for detached house building in the latter part of last year.

“Activity in the apartments sector only lost a modest amount of the ground gained in November while new orders contracted at a slower pace, but monthly iterations still revolve around clear contractionary conditions.

“All up, if policy makers were hoping the first housing update out in 2013 would deliver a signal of current policy settings boosting the chance of a new home building recovery, they’re going to have to keep hoping,” says Dale.

This article first appeared on Property Observer. Read today’s Fast Lane blog by SmartCompany editor Cara Waters to find out why the construction industry will continue to face tough times in 2013.

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