Construction’s strongest growth on record
A widely-watched private construction index has posted its strongest reading on record.
The Australian Industry Group – Housing Industry Association Performance of Construction Index (PCI) jumped 4.1 points to 59.1 in September.
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That is not only well above the 50-point level that separates expansion from contraction, but is also the strongest pace of growth recorded in the survey’s nine-year history.
Residential property is leading the expansion, with a recent surge in home prices in Australia’s two biggest cities prompting developers to capitalise by churning out apartments and houses.
The house building subsector was at 61.7 points, with apartment building also expanding strongly at 60.5.
Commercial construction (such as office towers) was not far behind, rising 3 points to 58.4.
Engineering construction (including mining and infrastructure) continued to lag, but the subindex rose 4.6 points to 48.3, indicting that the contraction is modest.
The building boom is also feeding through to employment, with that subindex also at a record level of 62.8 after jumping 9.1 points last month.
“Wages growth accelerated across the sector suggesting that, despite flat overall conditions in the labour market and the easing of activity in engineering construction, skill shortages may be beginning to reappear,” said the Ai Group’s director of public policy Peter Burn.
The HIA, a developer and builder lobby group, says the index suggests that the strong overall result and growth in the new orders subindex indicate that residential construction sector will expand into next year.
However, the HIA’s chief economist Harley Dale says investor lending limits planned by financial regulators may put a cap on the building boom.
“It will be important for the broader economy that evidence of strong performance in residential and improving performance in commercial construction presents itself throughout 2014 and into next year,” he noted in the report.
“The current elevated focus and uncertainty around the potential implementation of restrictive lending practices, and sweeping generalisations on this subject, are not helpful to that evidence emerging.”