Residential building declines as government considers cash grants for new homes

A sharp decline of cranes in the skyline over the past 12 months was hitting the home building industry before the coronavirus pandemic began, heaping pressure on the Morrison government to roll out large cash grants to new home buyers.

Residential construction fell to $17.2 billion over the March quarter, Australian Bureau of Statistics data released on Wednesday shows. This was the seventh consecutive quarterly fall on a seasonally adjusted basis from a peak of $20.6 billion in June 2018.

Over the latest quarter, residential building declined 1.6 per cent compared to the previous three months and fell 12.5 per cent compared to the March quarter 2019.

The housing construction sector employs about 1.1 million people and the construction industry was considered an essential service and allowed to continue through the shutdowns.

However, the decline does not yet fully represent the coronavirus pandemic's hit to demand for new homes as there is a lag between the time it takes to start an application to build and approve a new construction.

BIS Oxford Economics senior economist Nicholas Fearnley said the residential decline was the "main drag" on overall construction activity, which was down 1 per cent over the quarter. Non-residential building held steady.

"Although COVID-related supply chain disruption may have weighed on activity, the majority of the decline reflects the downturn in dwelling approvals seen in 2018 and 2019," Mr Fearnley said.

"The lag between the shift in sentiment caused by the pandemic ... to dwelling approvals and work done will be at least six months, consequently we expect residential building activity to continue trending down well into 2021," he said.

The pandemic also has ongoing long-term implications for the housing market with sharp falls in net overseas migration expected over 2020 and 2021 in part due to border shutdowns globally to stop the spread of the virus.

Prime Minister Scott Morrison expects this slowing in population growth to have a "real impact" on the construction sector, while Treasurer Josh Frydenberg and Housing Minister Michael Sukkar are discussing a housing construction rescue plan. Among the initiatives the property industry is lobbying for is a grant for new home buyers.

CommSec senior economist Ryan Felsman said in NSW there was a 17.3 per cent drop in construction over the year marking the biggest annual decline for the state in 19 years.

"Construction work across Australia was easing prior to the virus-driven lockdown with activity weakening over the past two years due to the slowdown in residential home building, moderation in non-mining infrastructure commencements, easing in population growth and bushfire disruptions," he said.

"The construction sector is a vital cog in the Aussie economic recovery."