Tough conditions persist across construction

15-09-2010

Tough conditions across the national construction industry kept the sector in negative territory last month. 

The latest seasonally adjusted Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) remained broadly unchanged in August down 0.1 points to 43.2 (readings below 50 indicate a contraction in activity).

Poor market demand, reduced work from school building projects together with intense competition to secure existing contracts, impacted negatively across construction resulting in a drop in new orders, deliveries and selling prices. 

All major sectors remained in the red in August, with house building falling to 38.4 – the lowest reading in 16 months.

Australian Industry Group Director Public Policy, Dr Peter Burn, said: "The disappointing results for the Australian PCI in August suggest that the construction sector is yet to bounce back from a distinct decline in performance since May. 

“The decline of activity and new orders in the house building sub-sector is of particular concern. 

“While weakness in activity persisted in other sub-sectors, the pace of declines eased in August.

"The industry remains hampered by the failure of private demand to take up the slack left by the dwindling number of new public sector projects and the withdrawal of additional support for first home buyers. In the commercial construction sector in particular, an inability to secure funding for projects is a key element in the shortfall in private demand," Dr Burn said.

Housing Industry Association Chief Economist, Harley Dale, said: "As the positive impact from fiscal and monetary policy stimulus has unwound, it has become increasingly apparent that a first stage new home building recovery will not morph into a more sustainable housing up-cycle.

“This situation is particularly evidenced by the further deterioration in August of the house building sub index of the Australian PCI, Mr Dale said.

"Rising interest rates earlier in the year played a role in dampening demand, while the on-going lack of available finance for development is showing no material sign of improvement and is a major obstacle to a sustained recovery.

“If you add within this restricting environment the perennial supply side issues related to, for example, lack of affordable land and high taxation and regulation on new housing, it is difficult to envisage a short term turnaround."

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