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    NSW an exception in construction sector slowdown story

    There are several signs of a slowdown in the residential construction sector in Australia, according to the new Cordell Housing Index Price (CHIPS) report by CoreLogic. Trends in housing construction costs are an important indicator – though the costs continued to rise over the March quarter, the growth showed deceleration.

    According to the CoreLogic building index report author Eliza Owen, in nominal terms, quarterly growth in the national CHIP Index fell from 1.1 percent in the December 2017 quarter, to 0.8 percent in Q1 of 2018. In the five states covered in the CHIP report, growth in construction costs over the March quarter was lower relative to the December quarter last year, except New South Wales where the quarterly growth was steady at 1.1 percent.

    However, this slower growth in residential construction costs nationally reflects other signs of a slowdown across the residential construction space such as employment in construction and residential dwelling commencements. The Australian Bureau of Statistics data reveals that in the three months to February, employment in the construction sector grew 1.8 percent, substantially lower than the high of 2.7 percent growth recorded over the June quarter in 2017.

    Similarly, residential dwelling commencements peaked in March 2016 at 59,253, slowing down to 8.8 percent (54,035) in the December 2017 quarter.

    The construction slowdown may see pressure ease on the cost of housing construction in future quarters.

    In New South Wales, however, housing construction costs continue to hold firm over the quarter. Where the national quarterly growth in the CHIP Index fell 23 basis points, the NSW CHIP index slowed just 3 basis points, indicating the highest quarterly growth rate across the 5 states.

    Real growth in the NSW CHIP index actually increased in Q1 to 0.79 percent, up from 0.4 percent due to increased building costs against a particularly slow quarter for inflation in NSW.

    Owen says that it is difficult to understand the drivers of such a sharp real increase in the value of construction, particularly when dwelling commencements are also in a declining mode - commencements have fallen 15.9 percent in NSW, following a peak of 20,638 starts in September 2016.

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