Mining cliff over, what next for the residential market? Pete Wargent

Total construction work done declined by 0.7 percent in seasonally adjusted terms to $46.4 billion over the first quarter of the calendar year to be 7.2 percent lower over the year to March 2017. 

 

After weaker trade and retail figures, all of the signs appear to be pointing to a weak result for GDP growth in the first quarter. 

First, here's the good news: having peaked all the way back in 2012, engineering construction activity is now rising again. 

 

There were still moderate ongoing declines in Western Australia and the Northern Territory as resources construction activity continues to wind down, but the rates of these declines is now tapering off.

 

And indeed, at the national level engineering construction activity is rising again, partly driven by infrastructure projects in the three most populous states. 

 

Residential building work done dropped by 4.7 per cent in the quarter, which was the worst quarterly result for the sector since the introduction of the Goods and Sales Tax (GST) more than a decade and a half ago. 

 

Building activity slowed across new house building, apartments, and major renovations, suggesting that at least part of the reason for the decline was Cyclone Debbie towards the end of the quarter, while Sydney also had some shocking weather during the period. 

And looking at the building work done figures by state confirms as much, with a very sharp 10 per cent quarterly drop in Queensland, and a somewhat lesser 4 per cent decline in New South Wales. 

 

In Victoria building activity powered to a new record high in chain volume measures terms, with the industry going like the clappers in Melbourne and operating at close to full capacity. 

New detached house construction has been broadly flat since the end of 2014, with the growth in residential construction since that time driven by record activity levels in the apartments sector.

 

Here too there was a sharp weather-related 22 per cent fall in Queensland, plus a relatively small decline in New South Wales.

But there was also a slowdown in evidence in Western Australia, South Australia, the Northern Territory, and Canberra. 

 

On this evidence, then, it's possible that the peak for apartment construction activity might have passed, although there is of course still a huge pipeline of work to be completed.  

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Firstly, growth in the economy in the first quarter is going to be weak, and perhaps very weak. 

 

On the positive side there is light at the end of the tunnel for the resources states, as engineering construction activity finally looks to be bottoming out, after years of contraction. 

 

Strip out the impact of Cyclone Debbie and heavy rain in Sydney and the apparently sharp drop in residential construction in the first quarter of the year may prove to be less than dramatic. 

 

However, it's hard to escape the conclusion that building activity in the residential sector is about to fade away as the record pipeline of apartments is delivered to the market. 

 

It might reasonably be expected that dwelling starts fall by about a quarter over the next couple of years. 

 

Given the huge level of employment in the construction industry, this could prove to be a very significant drag on the economy going forward.