Construction activity in Australia has tumbled for a third straight quarter, according to the Australian Bureau of Statistics. The total number of new dwellings fell 6.5 per cent to 49,017, pulled by the fall in private sector housing, which was down 11.6 per cent to 29,672. The value of total building work completed fell 0.5 per cent to $30.4 billion in the March quarter, in seasonally adjusted terms. Meanwhile, new home starts are down 6.7 per cent from the same period a year ago.
According to the Housing Industry Association, the boom in building activity was linked to the fall in interest rates. Conversely, the current slowdown is linked to interest rate rises. Two years of elevated new home building was unleashed by falling borrowing costs, pandemic-driven demand and house price escalation. However, the cost of new home construction has risen faster than wage growth, and the cost of borrowing has also increased, so affordability constraints have started to weigh.
The rate rise alone will have a negligible impact on the volume of home construction being commenced in Australia, which is at record levels. But subsequent increases in the cash rate will eventually constrain household expenditure and demand for new homes. In previous rate rising cycles, the first increase in the cash rate led to a slowing in new home construction just six months later.
Looking ahead, labour force figures for June will also be released on Thursday by the Bureau, with the unemployment rate expected to fall to 3.8 per cent from 3.9 per cent. If this is unveiled, it would be the lowest jobless rate since 1974 and could strengthen the Reserve Bank of Australia’s case to raise the cash rate next month. Westpac economists are expecting a 50 basis point hike in August and then a breather in September.