Released on Wednesday, construction work done for the month of March fell a further 2.9% to a touch over $64 billion. 

Residential construction fell 1.2% to just under $19.6 billion according to ABS figures.

A worthy companion dataset, dwelling approvals for April, showed a dip by 0.3% to 13,078 dwellings. 

Private sector houses fell 1.6%, while private sector units dropped 1.1%. 

D-Day is looming for the government's Housing Australia Future Fund, where half a billion dollars of the total $10 billion will be spent in 2024-25, trying to fulfil its goal of 1.2 million homes built over the next five years.

This equates to 20,000 a month - currently Australia is approving just over half that, and starting just under 14,000 per month as of December quarter construction statistics.

Speaking to the Savings Tip Jar Podcast last month, Housing Industry Australia senior economist Tom Devitt outlined why there's a lag in construction.

"[Interest rate rises] are just the loudest one that gets most of the attention," he said.

"The cost of building a new home has gone up by over $100,000, around 30 to 40% [since the pandemic]."

The latest monthly CPI indicator shows housing costs, up 4.9% in the 12 months to April, bear a significant weight on the overall 3.6% figure. 

New dwelling prices rose 4.9% over the year, which the ABS attributes to builders passing higher costs for labour and materials onto the consumer.

The sheer cost of construction was a worry also reflected in NAB's latest quarterly property survey.

"The majority of survey participants (76%) still saw construction costs as a barrier to starting new residential projects in Q1 – particularly in VIC (88%) and NSW (79%)," NAB's group chief economist Alan Oster said.

ANZ economists however expect these anxieties to settle should house prices record strong price growth again and the labour market eases in the second half of 2024.

Headwinds in the labour market

The question is not so much the desire to build, but the ability to get materials and tradies' boots on the ground to do the job.

Westpac economists Pat Bustamante and Ryan Wells also pointed to the changing trends in the construction sector's labour force.

"Hours worked in the construction sector declined by a sharp –2.5% in the March quarter," they said.

"[The construction] pipeline received a boost with federal and state governments using recent budgets to top up infrastructure funding.

"On the other hand, residential construction, including renovations, has been declining in response to higher interest rates.

"Going forward we expect this dynamic to continue and for activity to remain elevated as the infrastructure pipeline is worked through, with residential construction continuing to drag."

Job ads in the construction sector are also showing mixed results; the NAB-Seek job ads report for April shows job listings in Trades & Services is up 45% on pre-pandemic; however construction listings are just 1% above pre-pandemic levels, and 24% below the peak in May 2022.

This is against a backdrop of more builders going under, with recent collapses including Stevens Constructions and Simsai Construction over the past few days.

Data on the March quarter from the Australian Financial Security Authority (AFSA) noted there were 2,981 new personal insolvencies over the period, up from 2,494 in March 2023.

Deloitte research shows the construction sector has accounted for approximately 25% of all insolvencies since mid-2021.

Builders left holding the bag on pandemic policies

And it's not interest rate rises solely driving this, according to the note from Deloitte's Access Economics team.

"One of the key factors contributing to this surge in insolvencies is the Australian Taxation Office pursuing debts that were previously put on hold during the pandemic," the note read.

"According to the ATO, collectable debt rose 89% in the four years to June 2023. This has particularly impacted small businesses, as they account for approximately 65% of the total debt owed to the ATO - around $33 billion."

Speaking of kicking the can down the road, the RBA's assistant governor (economic), Sarah Hunter, in a recent speech pointed to another pandemic-era policy that drove up demand when supply was not there to match.

"In the early days of the pandemic, Covid-related supply chain disruptions significantly limited the sector’s ability to respond to increasing demand, which was partly linked to the HomeBuilder program," Ms Hunter said at the REIA Centennial Congress in Hobart two weeks ago.

"Materials, fixtures and fittings, and skilled labour were in short supply, and shipping delays significantly extended build timelines."

Red tape also to blame at state and local level

While interest rate rises are easy to blame, they are becoming less pervasive in hampering confidence to build dwellings.

"Delays in obtaining planning permits were another notable barrier to starting new projects, with around half of survey respondents identifying this as a concern," Mr Oster said.

"With policy rates not rising again since November, fewer property professionals saw rising interest rates as a barrier (39% down from 55%)."

However the HIA's Mr Devitt pointed to a few solutions.

"We think there's plenty of underlying demand for for high density. It's just that in a number of markets, it's easier to build out on the outskirts, but that's not necessarily the best way to design a city by continually spreading outwards," Mr Devitt told the Savings Tip Jar Podcast.

"We've been calling for [stamp duty] to be abolished for a long time and replaced with a fairer tax; it matters less what they replace it with - just that they get rid of it as it's one of the one of the worst taxes available," he said.

"[We need] planning reforms that speed up the release of new land, and increase the development deployment density, dwellings in existing suburbs near where jobs and transport already exist.

"Governments should pause any further changes to the Construction Code ... which end up requiring more labour and resources without actually resulting in any more councils getting dwellings built."

Image by Harrison Astbury