The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) fell by 4.2 points to 46.2 in June, indicating a contraction in activity across the construction sector following months of positive or stable conditions (readings below 50 indicate contraction in activity, with lower results indicating a stronger rate of contraction).

Australian PCI – Key findings for June 2022:

• Three of the four construction sectors – housing, apartments and commercial – were in contraction in June. All saw activity fall significantly from the previous month.
• House builders reported higher interest rates constraining new orders, which again fell in June.
• Labour shortages and delays in supplier deliveries continued to constrain activity. Builders reported ongoing concerns about increases in inputs (including fuel) and labour prices.
• Capacity utilisation moderated slightly to 82.4% but remains elevated as it has been for much of 2021 and 2022

“The Australian construction sector faces significant pressure. Supply constraints for staff and materials are continuing to grow, with input prices setting a record in June,” Ai Group director of research & economics Jeffrey Wilson says.

“Housing, apartment and commercial construction activity all declined further into contraction this month. The effect of rising interest rates was evident across house building and apartments as builders reported a drop in enquiries and new orders.”

HIA senior economist Nicholas Ward adds that materials and labour shortages continued to weigh on home building in June: “These constraints have resulted in increases in the cost of construction and extended build times.

“Demand for new detached homes and renovations has been exceptionally strong during the pandemic. There is a record volume of detached houses under construction, with more work entering the pipeline each month. With this large volume of work to be done, builders can expect to be at capacity in 2022 and 2023.”