Value of building work hits new annual records
Despite the lockdowns of the September quarter, the value of building work undertaken hit record levels, with work on houses calculated to be valued at $A39 billion, a rise of 3.1% on the prior quarter. The other positive mover was alterations and additions, where the value of work leapt 5.6% on the prior quarter to $A11 billion.
We reported on Building Activity for the June Quarter in the last issue of Stats Count. The ‘Value of Work Done’ is a preliminary data series and provides early insight to activity for the September quarter.
It is well understood that the pipeline of work – housing started but not yet completed – is enormous right now. When this data swings from preliminary to final we can calculate just how large that is.
For the time being, as we can see below, the value of work on houses in the September quarter was easily the largest quarter ever and there is simply no doubt that the December quarter will show a similarly massive result. We can expect the annualised work on houses to be valued at greater than $A40 billion for 2021.
The situation is very similar – the trend line of the last year is little different – for alterations and additions, as we can see below.
It is important to consider what may be driving this big spike in the value of housing work. After all, as CSR reported recently (Simon Evans, Australian Financial Review), building timelines have blown out by as much as a year! CSR attributes the delays to disrupted supply chains, labour shortages and … cost pressures.
That makes sense. If building is slower because of bottlenecks for materials and labour, the other major factor impacting the value of work done, must be costs. The HIA reported to Ronald Mizen in the Australian Financial Review that the largest labour shortage on record had pushed labour costs up 5.2% to the end of September.
The chart here shows the latest Producer Price Index (PPI) data for the housing sector. We have specifically selected only those costs associated with the forestry and wood products industry. In aggregate, for home building, the PPI rose 8.0% over the year-ended September, with structural timber prices up 22.1% and other timber, board and joinery up 12.2% for instance.
Housing & Construction Industry: Producer Price Index: MQ’11 - SQ’21 (INDEX: MQ’11 = 100)
Source: ABS & IndustryEdge
Meantime, with the total value of work on houses and renos lifting steeply, the same cannot be said for other residential formats and non-residential construction, shown in the two charts below.
The value of other residential work was down an aggregate 7.8% and non-residential construction 2.2% compared with the prior quarter. These sectors are far more sensitive to costs.
Steep growth in the value of building work is of great interest. It helps us understand the work behind and ahead of us – and the rising costs of building in Australia.