ABS Building Activity - Commenced stats
Residential commencements fall through 2023
If the stats from the ABS indicate anything, it is that the number of residential construction commencements in 2023 continued to fall, while the value of work yet to be done mostly rose.
Mon Apr 22 2024
The Australian Bureau of Statistics (ABS) has released its Building Activity stats through to the end of December quarter 2023.
As the big question for hardware retail is exactly where the residential construction industry is headed in 2024, the numbers of most interest are those for building activity commenced and building activity not yet commenced.
The first - commenced - gives some clue as to how much housing activity actually got going during the most recent quarter. The second - not yet commenced - indicates how much work is in the pipeline.
The data is presented in calendar years.
New South Wales
The first chart for New South Wales (NSW) paints a fairly clear picture of a slowdown.
In the first two quarters of 2023, the number of commencements remain above only the initial COVID-19 year of 2020, then dive still lower in the third and fourth quarters, to set a seven-year local low record.
Turning to commencements for other residential, the picture is slightly better, but not all that encouraging.
While June quarter 2023 shows an encouraging upwards spike, this is followed by a sharp decline to September and only a mild recovery in December quarter.
Building activity not yet commenced is a more complex measure to understand.
While the continuing gain seems encouraging, given the context of work commenced, it probably is not. Given the low level of commencements, this is less likely to be due to overload of the construction industry resources, and more due to delays from other sources.
Victoria
As with NSW, houses commenced for Victoria (VIC) shows a clear slow-down, setting three local seven-year lows for 2023.
For other residential commencements are more nuanced. While a seven-year local low is reached in June quarter 2023 follow more of the trajectory of 2021, lifting above the numbers reported for 2022.
While there is a degree of seasonality to the increase in the value for not yet commenced building for VIC, it's also likely we are seeing some of the same non-construction factors at play in the increase through the September and December quarters.
Queensland
While Queensland (QLD) shows a counter-seasonal lift in the number of commencements for June quarter 2023, this quickly slides down to seven-year local lows for both the September and December quarters.
Other residential might look to be in similar dire straits, but that's not really the case.
The number of commencements for 2023 is around only a 100 less than for 2022, showing ongoing demand.
Again, for not yet commenced there is an increase.
In this case, the full year of 2023 sets a local seven-year high for every quarter
South Australia
While the commenced houses for South Australia (SA) numbers could not be described as "optimistic", they certainly tell a better story than those for the east-coast states.
More or less 2023 is basically a return to pre-COVID-19 levels of commencements.
The story is a little less sanguine for other residential commencements. While the sharp spike for September quarter 2023 is impressive - and shows a degree of resilience in the market - in fact the overall level of commencements is nearly equal to those for 2020 (the green line).
We see the same pattern - even exaggerated a little - for net yet commenced value during 2023 for SA: a set of new local seven-year highs.
Western Australia
For Western Australia (WA) the best description of the number of houses commenced stats might be that it has not only fallen back to pre-COVID-19 numbers, but low pre-COVID-19 numbers.
That's less the case for the number of other residential commencements, which are hitting local seven-year lows in the second half of 2023.
Not yet commenced values are again slightly contradictory, increasing despite the drop in actual commencements during preceding quarters.
Tasmania
For number of house commencements, the most noticeable number for Tasmania (TAS) is the drop to a new seven-year local low in December 2023 quarter. That runs counter to seasonality, as well.
For other residential commencements, TAS really hit back to pre-COVID-19 numbers in 2022. In 2023, it has further dropped below that.
And yes, again, the steep rise in the value of not yet commenced work.
Northern Territory
Interpreting residential construction stats from the Northern Territory (NT) is always difficult, as its economy is highly affected by local factors. However, we can see that numbers of houses commenced has fallen sharply in the second half of 2023.
Likewise, numbers of other residential dwellings commenced have equalled all-time lows - inasmuch as zero is about as low as you can go.
Value of not yet commenced work spiked for December quarter 2023.
Australian Capital Territory
While the Australian Capital Territory (ACT), like the NT, has something of a partially insulated economy, it still does respond more to national influences. That is certainly the case with number of houses commenced.
That's a very definite low for 2023.
Numbers of other residential is really quite interesting. It's low, but just how low is it?
As it turns out, the annual total for 2023 is lower than the other six years displayed - though not that much higher than 2019.
Value of not yet commenced again shows a new set of highs for 2023.
Analysis
Has the overall economic analysis of the housing industry really been complete? Not really. There is one key element that seems to be consistently missing.
It's fairly evident from these charts that 2023 has seen a reduction in the number of building starts for both houses and non-houses, well the value building work not yet commenced has increased. As a helpful summary, we can review the charts for house builds commenced on an annual basis across the six states.
New South Wales
Victoria
Queensland
South Australia
Western Australia
Tasmania
With the exception of SA, the states show that 2023 comes in below the numbers for five years previously, in 2018. That would indicate that there is a real slowdown underway, and not just a more relative reduction.
The other interesting factor is that, despite the high interest rates and growing price of houses, the market is indicating that there has not been much a shift to non-house dwellings. That's partly a cultural bias, but it also has to do with the construction industry itself: unlike in the US and much of Europe (including the UK), Australian architects and builders are not adept at building higher-end apartments.
But there is something more going on here. In the US, for example, the last couple of years has seen a big surge in the construction of apartment blocks, to such an extent that rents in 2025 are expected not just to stabilise, but to be reduced as well (especially as "move-in" incentives are offered).
Beyond cultural pressures there is another key factor at work here: The US economy is quietly booming. Even with high interest rates, there is a lot of money washing through the economy looking for tax effective investments. The economy grew at a rate of 3.3% in the last quarter of 2023, even as inflation diminished.
The reason for that, more than anything, is the role of "post-industrial" industry such as technology. While technology firms contributed something like 10% of gross domestic product (GDP), the are also though largely responsible for the unexpected high growth in US productivity - which reached 4.7% in the September quarter of 2023.
While we can certainly point to inflation-busting high interest rates, poor city planning, Australians' rampant "NIMBYism" and high levels of migration to city centres as all contributing causes to a confined housing market, the really major, underlying reason is that the Australian economy is not doing well.