Sluggish home demand drags construction sector down

The weakness in the residential segment has resulted in the slowest pace of the construction sector in over a year, recent industry figures show.

Business Insider Australia reported that the Australian Industry Group’s (Ai Group) Performance of Construction Index (PCI) dropped to 50.6 points in June, its lowest level in 17 months. While the construction level was still on the positive side, the slowdown in home and apartment construction has offset the gains in commercial and engineering construction.

Figures from the Australian Bureau of Statistics show that building approvals for new homes have declined by 8.6% in May to 9,545, causing the annual growth for detached home approvals to fall by 1.2%. At the same time, dwelling approvals declined in four states: Queensland (4.2%), Victoria (2.7%), Tasmania (2%), and Western Australia (0.8%).

“House building respondents cited support from a solid backlog of work, although there were reports of a softening in new orders, weaker new house sales and a more cautious approach by prospective buyers," the Ai Group told Business Insider.

On the other hand, the moderation in apartment building activity was due to sluggish investor demand.

Housing Industry Association (HIA) senior economist Shane Garrett said the slowdown in residential construction was also a result of regulator and government policies.

“Apartment building activity is particularly sensitive to the restrictions on foreign investors which were tightened in recent state budgets in addition to more onerous APRA regulations with regard to interest-only loans," he told Business Insider.

"Such interventions risk undermining the capacity of rental markets in key growth areas and could slow down the pace of job creation and economic expansion.”

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