Commencements Up, Completions Down, Pipeline at Record Levels
Australia’s overhang of uncompleted housing construction activity blew out further in the March quarter, pushing to almost 76,000 dwellings remaining under construction. Directly linked to that, having grown at the fastest rate in history, the annualised value of building work in the pipeline has pushed out to $61.929 billion, up a large 9.7% in the March quarter.
The chart below shows Housing commencements rising sharply, completions flat-lining and as a result, the number of dwellings under construction rising at the steepest rate in history.
The growth in the number of dwellings under construction was 10,600 in the March quarter, beating out IndustryEdge’s recent estimate of 8,500 by a large margin. In the main, the higher-than-expected quarterly overhang was delivered courtesy of completions declining 1.2% to 25,748, resulting in houses under construction ballooning out 16.2% to a record 75,824.
We should dwell on this point a little, as the timber industry carries quite a lot of the load for the supply chain challenges. Here is the evidence that since the start of 2021 at the latest, the pace at which buildings are being completed appears to be slowing. This can occur for plenty of reasons related to capacity (materials, labour, capital etc). It can also occur because of poor organisation of an over run of work that manifests itself in ways that allocates specialist labour inefficiently – and that could be a reason for declining completions.
In the end, what this means is the March quarter was the third successive quarter in which the uncompleted work has been at record levels!
Inevitably, this showed up in ‘work in the pipeline’ measures. The value of that work was up 9.7% to $61.929 billion as previously described.
Interestingly, the value of building work commenced only rose marginally, up 0.1%, despite the surge in number of homes started. This may suggest the average value of the projects underway is lower than was the case previously. Surely, there was no building industry discounting under way to win work? That would beggar belief when every participant is full to brimming and price increases are being factored in, long into the future.
Had the value of commenced work been up one or two percent, as an example and more in line with expectations, the total value of work in the pipeline could have pushed the $65 billion mark!
Now, that is all about new houses, but at the same time, the great renovation rush has been running like a freight train, with work commenced at $3.0 billion up 14.9% for the quarter. That adds to the work that needs to be done and the pressures on the supply chain.
The overhang of housing work is showing up in other sectors, where labour and materials are being ‘shorted’ as the nation tries to build its mid-pandemic recovery. The non-residential building sectors are in the doldrums with both commercial (-20.6%) and Industrial (-17.7%) down.
And finally, though it does not amount to more than a hill of beans, there was solid March quarter growth in buildings for the education and health sectors. That was insufficient however for non-residential as a whole to pull ahead of its value in the December quarter, declining 1.3% to $11.46 billion for the quarter.
What does all this tell us? Quite a lot, albeit in arrears.
First, it will take a really long time to build the pipeline of housing work.
Second, stimulus drives economic activity in the housing sector.
Third, for those who follow these things, Maslow was right – the hierarchy of needs means having a roof over one’s head is well ahead of nearly all else when a crisis hits. Perhaps that explains the massive rush to housing over the course of the pandemic to date!