Australian construction work expanded by a further 0.7% in the December quarter (vs 0.8% expected), rising for the 6th quarter in succession. Construction activity is up by a sharp 8.7% through the year, with public sector infrastructure projects continuing to define this cycle. By contrast, residential construction remains weak as supply and labour constraints - legacy issues associated with the pandemic - and higher interest rates continue to impact.
A 0.7% increase in construction work came through in the December quarter. The engineering component led the way posting a 2.7% quarter-on-quarter lift to be up by 15% through the year. Much of this strength has come in the public sector (6.1%q/q, 20.5%Y/Y), reflecting increased progress on major infrastructure projects that governments across Australia sought to roll out on an accelerated basis to support the economic recovery from the pandemic. This has, however, generated an associated boost for private sector engineering work (-0.1%q/q, 10.5%Y/Y).
Building work was down 1.1% overall in the quarter, with growth through the year easing from 4.2% to 3.6%. Although non-residential work accelerated by 5% in the quarter (12.1%Y/Y) this was more than offset by a 5.2% fall from residential work (-1.9%Y/Y). In terms of non-residential work, industrial projects have been a beneficiary following low vacancy rates and rising rents.
In the residential segment, private sector activity in new home building (-4.8%) and alterations (-7.8%) contracted sharply, leaving both components down through the year at -1.3% and -6.5% respectively. Despite a large pipeline of homes under construction, progress through to completion continues to be hindered while higher interest rates may have deferred some of this activity from coming through. The alterations space is normalising from the highs reached during the pandemic when this activity was supported by construction subsidies and low interest rates.
