Building costs soar by the most in more than 21 years 

Construction work done; Skilled job vacancies; RBA speech

• The value of construction work done fell by 0.9 per cent in the March quarter but it was still up 1.4 per cent on a year ago.
• Building costs rose by 2.8 per cent in the March quarter – the biggest lift in 21½ years.
• Skilled vacancies rose by 8 per cent in April to a record (16-year) high of 311,100.
• Reserve Bank Assistant Governor Luci Ellis delivered a speech discussing housing market trends.
• Two-thirds of Australian households own their own home with or without a mortgage. In 2019/20, housing affordability for owners with a mortgage (ratio of housing costs to gross household income) was the lowest (best) reading in more than 25 years.

What does it mean?

• Choppy conditions presided over the construction sector in the March quarter, impacted by bad weather in NSW and Queensland, shortages of labour and building materials, and therefore higher costs.
• Despite falls in work done in the first three months of 2022, it is clear there are still plenty of projects to wade through, from renovations and new houses through to large-scale engineering projects.
• The rising costs in building are well known, featuring in the recent consumer price index data. Demand for building materials and tradespeople drove up building costs by 2.8 per cent in the March quarter. There hasn’t been a bigger lift in costs since the introduction of the GST in 2000. Building costs are up 8.5 per cent over the year.
• Costs will eventually ease as workers return to their posts from the Omicron wave, resulting in more materials available to build the new structures and more tradespeople to do the work of building. But it will take some time. The key question for policymakers is how much ‘stickiness’ will be retained in terms of future price increases and levels. The Reserve Bank will undertake further normalisation of interest rates – lifting the cash rate by at least 25 basis points in June.
•  The figures are a bit dated now, (two years old) but before Covid, housing affordability for owners was at its best levels in at least 25 years.

What do you need to know?

 Construction work done – March quarter, 2022

• Construction work done fell by 0.9 per cent in the March quarter but the value of construction work done was still up by 1.4 per cent on a year ago to $53.66 billion.
• Construction work fell in five states and territories in the quarter. NSW fell 1.6 per cent (down 2.3 per cent over the year); Victoria rose by 2.6 per cent (up 8.1 per cent); Queensland down 4.4 per cent (up 1.7 per cent); South Australia down 5.0 per cent (up 3.2 per cent); Western Australia up 2.6 per cent (down 5.6 per cent); Tasmania up 0.2 per cent (up 11.8 per cent); Northern Territory down 19.2 per cent (up 31.4 per cent); ACT down 14.4 per cent (down 10.4 per cent).
• Engineering work fell by 0.4 per cent in the March quarter but was still up 4.9 per cent over the year.
• Commercial (non-residential) building fell by 1.8 per cent in the quarter but was still up 1.0 per cent on the year.
• Total residential building fell by 0.9 per cent in the quarter and was down by 2.4 per cent over the year.
• New home building work fell by 1.4 per cent in the quarter to be down 2.7 per cent over the year.
• Alterations & additions rose by 1.9 per cent in the quarter but was down 0.7 per cent on the year.
• Construction costs rose by 2.4 per cent in the March quarter (the biggest increase in 13½ years). Building costs were up 2.8 per cent in the quarter (the biggest lift since the GST introduction 21½ years ago). And engineering costs lifted 1.8 per cent (biggest increase in three years).
• Over the year, construction costs grew 7.6 per cent (13½-year high) with building costs up 8.5 per cent (18-year high); and engineering costs climbed by 6.4 per cent. (13-year high).

Skilled job vacancies – detailed results, April 2022

• In seasonally adjusted terms, job advertisements increased by 8.0 per cent (or 23,100 job advertisements) in April 2022 to stand at 311,100. The strong increase in recruitment activity growth saw job advertisements reach their highest level since the start of the series in January 2006.
• “Job advertisements increased across 47 of the 48 detailed occupational groups during April 2022. Sales Assistants and Salespersons recorded the largest increase in level over the month (up by 2,600 job advertisements or 15.7 per cent), followed by General-Inquiry Clerks, Call Centre Workers, and Receptionists (2,200 job advertisements or 10.1 per cent) and Hospitality Workers (1,700 job advertisements or 13.9 per cent). Protective Service Workers recorded the only decrease in April 2022 (down by 20 job advertisements or 1.8 per cent).”

Reserve Bank speech

• Reserve Bank Assistant Governor Luci Ellis delivered a speech “Housing in the Endemic Phase”.
• The speech can be found here: https://www.rba.gov.au/speeches/2022/sp-ag-2022-05-25.html

Housing occupancy – 2019/20

• Two thirds (66 per cent) of Australian households owned their own home with or without a mortgage. This was consistent with ownership in 2017/18 (66 per cent).
• Almost one third (31 per cent) of Australian households rented their home in 2019/20, a decrease from 32 per cent in 2017/18.
• The average number of persons per household remained stable at 2.6, and the average number of bedrooms per dwelling decreased from 3.2 to 3.1. More than three-quarters (77 per cent) of households had at least one bedroom spare.
• The ratio of housing costs to gross household income was 15.5 per cent for owners with a mortgage, down from 15.9 per cent in 2017/18.