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Construction industry's performance is depressing

By: Peter Gosnell
14 September, 2010

Feature of the week: The August Performance of Construction Index (PCI) survey (released September 7) makes for depressing reading.

With new home construction activity at a 16 month low, a minor lift in the commercial and engineering sectors was not enough to prevent the Index slipping 0.1 percentage points to 43.2 points.

It was the third consecutive monthly decline for the Index, which the authors regard as being in contraction if it scores less than 50.  

AIG chief executive, Heather Ridout, said the waning industry measure proved that private sector demand is not able to fill the void created by the Commonwealth Government's staged wind back of housing construction and other stimulus initiatives. 

"The continuing sluggish performance of the services sector reinforces Ai Group's view of the ongoing patchiness of the recovery in the broader economy," Ridout said.

"Although there are some promising signs among the services sub-sectors, the sector as a whole is yet to feel the full benefits of the gradual re-emergence of private sector demand."

In a statement accompanying the release of the PCI Ridout stopped short of calling for stimulus measures to be extended beyond the Federal Government's self-imposed deadline of the end of this year. But she and other industry representatives will be closely monitoring statistics on new housing starts and other construction measures over what remains of the year. It was only in March this year that she expressed her wariness of "calls for an accelerated withdrawal of stimulus monies."

The AIG's Director of public policy Peter Burn told IndustrySearch that the industry lobbyist was not at this point prepared to change its position on stimulus, which endorses the government's current schedule of phasing out the bulk of the measures by year's end. But that view could change.

"If the economy is tanking, we would review our position on the stimulus and the PCI would be one element in our assessment of that," Burn said.

"The industry remains hampered by the failure of private demand to take up the slack left by the dwindling number of new public sector projects and the withdrawal of additional support for first home buyers.

"In the commercial construction sector in particular, an inability to secure funding for projects is a key element in the shortfall in private demand."

Burn's counterpart at the Housing Industry Association (HIA) echoed similar sentiments.

HIA chief economist Harley Dale said banks were imposing onerous terms on developers in exchange for funding.

"There are projects sitting there ready to go," Dale said.

"The only reason they are not going ahead is because the lending requirements are considerably tighter now than they were pre-GFC (Global Financial Crisis).

"The projects have been approved, they've been costed, they've been proved to be commercially viable but not within the additional restrictions of the lending environment that we are in at the moment."

Dale said banks are demanding higher levels of equity from developers, and also requiring higher levels of pre-sold dwellings, before the funds were released. But he said governments had the power to reduce burdens on the industry irrespective of the stricter lending environment.

"There needs to be a re-doubling of efforts to reduce the impact of regulation, development charging, and excessive taxation on the cost of new housing supply."

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