Building activity rose moderately in the first quarter of 2011, according to figures released this week by the Australian Bureau of Statistics. The announcement prompted a cautious response from industry representative groups.

The HIA

HIA Chief Economist, Dr Harley Dale, said that seasonally adjusted residential building work done increased by 1.9 per cent to an annual level of $47.6 billion in the March 2011 quarter.

"It is good to see a modest rise in residential building activity in early 2011, a result driven primarily by a 5.6 per cent increase in new construction of "other dwellings"," Dale said. "Unfortunately work done on detached houses was flat over the quarter rather than also posting a rise."

"The trend in new home building activity nevertheless turned down from late 2010. Leading indicators of new housing activity point to an acceleration of this downward trend in 2011/12 at a time when we clearly need the opposite to be occurring," Dale said.

Major renovations activity posted a 1.8 per cent rise in the March 2011 quarter to reach an annual worth of $6.91 billion, the highest in two years.

"Major renovations have started 2011 on a brighter note. Australians are increasingly looking to improve their existing homes rather than face the mounting transaction costs and new housing taxes and charges they will incur if they trade-up to another property or build a new home," said Harley Dale.

In the March 2011 quarter, seasonally adjusted new residential building work done increased by:

  • 7.3 per cent in New South Wales
  • 1.7 per cent in Victoria
  • 2 per cent in Tasmania
  • 27.4 per cent in the Australian Capital Territory.

Work done was flat in Western Australia and fell by 5.2 per cent in Queensland and 0.7 per cent in South Australia. In original terms new residential work done in the Northern Territory in the March 2011 quarter was down by 27.6 per cent when compared to the March quarter of last year.

Master Builders

There is a growing divide between building and mining-related engineering construction, according to Master Builders Australia.

Peter Jones, Master Builders Australia's Chief Economist said, "The latest figures show parts of the industry struggling, confirming evidence from Master Builders' surveys showing that builders' face difficulties in commercial and residential areas as stimulus spending programs wind down."

"Both residential and non-residential building remain below par, although the backlog of work to be done in the residential sector is more promising than in the non-residential sector, where work in the pipeline is down by one quarter on a year ago."

"Residential building, after promising so much, runs the risk of remaining weak as Reserve Bank rate rises and finance constraints act as a handbrake on the upturn."

"Another strong increase in engineering construction in the quarter confirms an acceleration in growth as mining-related projects appear from the huge pipeline of resources-related work."

"In contrast to the positive outlook for engineering construction, the residential building upswing faces ongoing challenges with the non-residential building sector desperate for private sector growth drivers to replace government programs."

"For the building and construction industry overall, a sectoral divide is opening up, with strong engineering construction fed by the mining boom contrasting with a weak building sector caught in the slow lane of a post GFC economy struggling to transition to a private sector led recovery."

The Urban Taskforce

The real value of Australia's building activity contracted for the third successive quarter, with a 3.4 per cent seasonally adjusted drop in the three months to March, according to The Urban Taskforce.

The Taskforce's chief executive, Aaron Gadiel, said the main cause of the decline was a three per cent seasonally adjusted drop off in non-residential building by the private sector, accompanied by a lack of growth in the value of new house construction.

"The sector enjoying the greatest buoyancy is medium and high density home construction which soared by 5.6 per cent in seasonally adjusted terms, its strongest quarter since June 2010," Mr Gadiel said.

"The big lift in medium and high density construction is largely based in Victoria - 16.6 per cent - while NSW saw only the most modest gains - 0.6 per cent.

"Queensland saw another fall - 10.1 per cent - in the value of its medium and high density construction."

Gadiel said that the value of new detached house construction in NSW jumped by 13.2 in NSW, compared with falls in Victoria (5.1 per cent) and Queensland (2.2 per cent).

"NSW's better performance in relation to new houses follows a relatively weak December quarter," Mr Gadiel said.

"NSW is also coming off a very low base - it accounts for 21 per cent of new residential development, but 32 per cent of the national population."

Gadiel said that non-residential building by the private sector suffered big falls in Western Australia (10.7 per cent), Queensland (9.9 per cent) and South Australia (10.2 per cent).

"Victoria also fell by 4 per cent, while NSW bucked the trend with a modest rise of 1.7 per cent."

Gadiel said the challenges facing the industry were clear.

"The industry's difficulties all come back to higher interest rates, difficulties in securing bank finance for developers, restrictive planning laws and punitive development levies," he said.

"If governments are serious about improving our urban environment, they will need to work hard on new policies to address these issues." Please note: A table comparing the relative performance of each state is below.