THE Omicron variant disruption of labour and material supplies triggered a slump across Australia’s construction sector over December and January.
Commercial construction and apartment building reported the steepest contractions in activity, according to the latest Housing Industry Association/Ai Group Australian Performance of Construction Index (PCI), as the industry’s volatile run continued.
The PCI’s reading of 45.9 for December and January was 11.1 points lower than November, with a reading above 50 representing expansion, and below 50 contraction. It was the lowest reading since August.
Apartment building tumbled 34.9 points to 21.4 and commercial building by 29.3 points to 39.5, while house builders reported a less dramatic fall (down 6.6 to 40.0) and engineering construction was in line with November’s levels of activity (down 16.7 to 50.0).
Construction activity dropped 18.9 to 41.1. Despite a lift in new orders for commercial construction, new orders across the broader industry fell 10.8 points to 47.7 due to a sharp reduction in orders for apartment building and a smaller drop in orders for houses.
Supplier deliveries were down 10.4 points to 34.4.
Peter Burn, chief policy advisor at the national employer association Ai Group said the latest downturn was driven by disruptions to labour supply, material supplies and business and household confidence associated with the rapid spread of the Omicron strain.
“As they have done for some time, builders and constructors reported labour shortages although in this period the unavailability of existing staff who were COVID-positive or required to isolate exacerbated the problem.”
Employment rose despite the slump in activity (down 2.5 to 56.5) as new staff were brought on board to partially fill labour supply gaps, marking 16 months of employment growth and recovery from the lows of 2020. Capacity utilisation decelerated but remained elevated at 82.3%.
Input prices continued to rise very strongly, sitting at 96.0, while both wages (up 2.7 to 76.0) and selling prices (up 3.4 to 81.4) also rose at a fast pace.
“Builders and constructors are hoping the reductions in COVID-19 infections evident over the past couple of weeks will ease some of the extra constraints evident over the past couple of months but they, like everyone else, are geared for further uncertainty and volatility,” Burn said.
HIA economist, Tom Devitt, said home builders are still limited by the availability of land, labour and materials.
“The HomeBuilder pipeline has only recently started reaching completion, with many more completions to come. Ongoing demand as part of the shift in homebuyer preferences towards more space and greater amenity will continue to keep builders busy into 2023.”
Australian Bureau of Statistics data released yesterday showed dwelling approvals in December lifted 8.2%, on the back of apartments and townhouse approvals lifting 27.5% to 10,444, while detached homes were down 1.8% to 7,008.
Detached home approvals are 21.3% lower than the HomeBuilder-fuelled boom seen 12 months earlier and 31.5% lower than the April record, but the series remains at historically high levels and is sitting 20.5% higher than pre-pandemic December 2019.
Apartments and townhouse approvals are 24.5% higher year on year.
New South Wales saw a 32.1% increase in overall approvals, and Victoria 2.5%, while all other states saw falls.
By value, a total of $11.5 billion of building was approved, down 2.1% over the month.
There was $6.4 billion worth of new residential building, up 8.3% over the month, and $1.05 billion in renovations, up 5.2%. Non-residential building dropped 16.3% to $4.04 billion.
Devitt said the inflationary impact of supply chain issues is relatively contained to fuel prices and home building costs.
“At their meeting this week, the RBA reinforced its willingness to be patient for supply chain issues to resolve themselves before raising their cash rate.
“The RBA’s first cash rate increase is expected to officially mark the end of the current boom.”
