There was a significant fall in demand in Australia’s construction sector last month, with residential building falling flat after several months of solid growth.
The Performance of Construction Index by the Australian Industry Group and the Housing Industry Association fell 4.1 points to 48.7 in March.
It is now below the key 50-point level that indicates expansion.
Home building activity was muted, while apartment building and engineering construction extended declines from previous months.
However there was some better news in the commercial construction sector which continued to build on the gradual recovery that has been evident since January.
Australian Industry Group spokesman Peter Burn says he is concerned about a big fall in new orders in the house building and apartment sub-sectors.
“That fall comes at a time when there is already a shortage of housing and a growing gap between demand and supply,” he said.
Dr Burn says businesses attributed the decline in housing new orders to the end of the first home buyers’ boost and the five official interest rate increases since October.
A senior economist with the Housing Industry Association, Ben Phillips, says last month’s weakness highlights the fragility of the recovery in the sector.
“The residential construction numbers for houses and apartments confirm a worrying downward trend for the new homes sector,” he said.
“The strength of the nation’s housing recovery is looking shaky.
“Industry hopes for a sustained and necessary recovery are fading under the impact of higher interest rates and continued pressure from credit and land restraints,” Mr Phillips said.
Dr Burn says access to finance re-emerged as a big issue for the construction industry last month.
“The operating environment remained difficult in March, with tight credit conditions, subdued client demand and project delays having adverse impacts on construction companies.”
He says the industry will struggle with the Reserve Bank’s decision this week to raise the cash rate by 25 basis points.
“The further increase in official interest rates announced on Tuesday is likely to dampen activity at a time when new orders are already falling in all of the sub-sectors other than commercial construction,” Dr Burn said.