Australia's housing sector slump shows up in another sickly set of data

Sydney

AUSTRALIA'S construction activity has slowed to the weakest in five-and-a-half years as tighter lending conditions and falling prices weigh on the housing market.

The Australian Industry Group Performance of Construction Index fell 1.9 points to 42.6 in December 2018, the lowest since June 2013 as the sector shrank for a fourth straight month.

A reading below 50 indicates contraction.

Apartment building was the weakest performing sector, falling for a ninth straight month and at the sharpest rate since mid-2012. Such projects were favoured by investors in the five-year boom that peaked last year, but demand has fallen off amid tighter lending curbs.

All four sectors of the gauge - house building, apartments, commercial and engineering - contracted in December, with declines in house and apartment activity the most marked in six years. That could weigh on fourth-quarter GDP and jobs data, with construction accounting for about 10 per cent of both indicators.

The Reserve Bank of Australia is closely watching construction activity, last month noting that the outstanding pipeline remained large and investment robust. Still, the rapid pace of Sydney house-price falls and worsening related indicators will likely prompt some commentary in its next interest-rate decision in February.

The downturn in Sydney's property market is set to deepen as tighter lending standards and the worst slump in values since the late 1980s cause nervous buyers to sit on the sidelines. Apartment approvals fell the most in a decade in November in another sign of investors pulling back. BLOOMBERG