Home construction slows
Companies feel the squeeze on profit margins
THE pace of home building contracted again in June as construction companies complained about facing increasingly squeezed profit margins, according to a survey of businesses in the industry.
The Australian Industry Group/Housing Industry Association Performance of Construction Index (PCI) report, released yesterday, said overall activity added 2.6 points on the previous month to 43.0 – a slight gain that left the measure below the 50point mark separating expansion and contraction.
The PCI recorded a 15th month of shrinking apartment building activity and indications that house building contracted for the 11th month in a row.
Construction on commercial projects also retreated amid a further drop-off in demand, the index suggested, while engineering construction – which includes work on roads, bridges and utility supply systems – had a small increase in expansion. The PCI report added that engineering work activity would likely expand in the near future.
“A solid pipeline of public infrastructure works (including transport and renewable energy projects) and new project additions by governments is likely to underpin more robust conditions for this sector over the months ahead,” it said.
But the survey results pointed to a marginally sharper drop in new orders for both houses and apartments in June, giving little indication of a short-term pickup in demand or construction.
“It suggests that housing activity will remain subdued in coming months,” the report said.
Many construction companies noted in the poll that their costs remained relatively high while their selling prices continued to fall.
“The ongoing gap between these price series in the Australian PCI demonstrates that profit margins remain tight for many businesses in the construction industry,” the report said.
Employment across the sector contracted for the 11th month in a row, pointing to “caution among construction businesses in terms of additional job hiring”.
Ai Group policy head Peter Burn welcomed the slight easing in the rate of overall contraction but said he expected any recovery to take several months.
“Builders will be hoping the recent cuts to interest rates and the forthcoming reductions in income tax will help turn the market around,” he said.