Australian construction activity came in a little stronger than expected in the March quarter rising by 2.4%, making this the sector's strongest outturn since Q3 2017. A surging residential sector is leading the way, with both detached home building and alterations rising strongly in response to pandemic stimulus measures.
Construction Work Done — Q1 | By the numbers
- Total construction work done (private and public sectors) advanced by 2.4% in the March quarter, better than the 2.1% rise expected. Work done in Q3 was revised to show a larger contraction (-1.5%) than initially reported (-0.9%). This still left activity 1.1% lower through the year (from -2.4%).
- The headline results were;
- Engineering work +2.2%q/q to $21.8bn (-0.3%Y/Y)
- Building work +2.5%q/q to $30.2bn (-1.8%Y/Y)
- Residential work +5.1% to $19bn (+4.2%Y/Y)
- Non-residential work -1.6%q/q to $11.2bn (-10.4%Y/Y)
Construction Work Done — Q1 | The details
Australian construction activity lifted above consensus in Q1, driven mostly by a strong showing from the residential sector and a more moderate lift in engineering work. Work done by the private sector picked up to rise by 1.7% in the quarter (-1.2%Y/Y), while public sector work advanced at its strongest pace in a single quarter in 3 years rising by 4.3% (-1.0%Y/Y).
The rise in private work was overwhelmingly led by the residential sector in response to the HomeBuilder scheme and other stimulus measures, which posted a 5.1% surge in Q1 — its strongest quarter in 6 years — to be up by 3.8% through the year. New home building lifted by 4.1% in Q1 (1.8%Y/Y) as alterations surged by 11.3% (17.2%Y/Y).
However, conditions in residential construction vary significantly between the detached segment, which has been the major beneficiary of the stimulus measures, and the higher-density segment that has fallen out of favour due to the effects of the pandemic and the closure of the international borders. New detached home building surged by 10.2% in Q1 (10.6%Y/Y) while higher-density construction fell by 4.4% (-9.8%Y/Y).
In contrast to the residential sector, the non-residential sector continued to contract, falling a further 5.6% in Q1 to be down by a sharp 17.6% on a year earlier. This is approaching the lows last seen during the GFC and highlights the toll that the pandemic has taken on business investment. Meanwhile, private engineering work was up by 1.6% for the quarter and 3.4% through the year.
Turning to the public sector, there were rises in both building work (7.1%) and engineering work (3.1%) in Q1. There was a surprisingly heavy fall in work done by the public sector in Q4 (-6.8%), but Q1's 4.3% lift should be more than just a rebound given the lengthy pipeline of projects state governments are bringing through.
Construction Work Done — Q1 | Insights
Today's report was a little better than expected with construction activity picking up on the back of an upswing in the residential sector. The surging residential sector is being driven by a very significant policy response since the onset of the pandemic, which includes low interest rates, the HomeBuilder scheme and other government incentives for first home buyers. The weakness in non-residential work is a cyclical response to the recession and heightened uncertainty of last year. Meanwhile, the rise in public sector work is a policy decision by governments to bring forward infrastructure spending to provide additional support to the recovery.