State's building bubble deflatesBy Josh Gordon Economics...

State's building bubble deflates

By Josh Gordon
Economics Correspondent
Canberra
July 19, 2005


Victoria's building sector is falling back to earth after its meteoric five-year rise - although economists and the State Government are confident it will be a soft landing rather than a destructive crash.

Figures from the Bureau of Statistics showed the value of building work completed across the state dropped by 9.1 per cent in the March quarter to $3.45 billion.

It was the biggest fall in the nation, raising concerns about the health of one of the most employment-intensive and volatile sectors of the state economy.

Although quarterly building activity has not been lower since June 2003, Treasurer John Brumby is optimistic that the sector will continue to bubble.

"We have several major infrastructure projects either in progress or in the pipeline that will provide ongoing stimulus to the Victorian economy," he said.

The sharp drop in building activity fits with other signs that the state economy is slowing. During the quarter, net state spending by businesses, households and governments fell by almost 1 per cent, while export volumes collapsed by 8.5 per cent.

Victoria had fewer resources than most states, while slowing domestic demand could "be a notable albatross for growth".

However, Victoria's decision to sign up to the federal bilateral agreement on workplace relations could help, Access said. The move secured more than $1 billion in road funding under last year's Auslink package, including the Calder Highway upgrade, the Geelong bypass, the Pakenham bypass and the Tottenham to Footscray rail upgrade. The deepening of Port Phillip Bay and the reconstruction of the Royal Children's Hospital will also help, in addition to a number of developments under way around the city.

Nationally, $12.3 billion worth of building work was completed in the March quarter, 3.5 per cent less than a year earlier. Sydney has been at the epicentre of the national downturn, with the value of building work 11.7 per cent lower than the March quarter of 2004.

But UBS economist Scott Haslem said housing finance figures released by ABS last week - showing a rise in loans to owner-occupiers and first home buyers - were a positive sign.

"This raises the question as to whether . . . structural problems are going to retard housing construction, prices and turnover for as long as currently expected," Mr Haslem said. Indicators for the sector as a whole were weak, with house prices flat or falling and affordability low, he said.

Meanwhile, the bureau said imports in June were 5 per cent higher than a year earlier, thanks mainly to soaring petrol prices and increased shipments of manufactured products.

KEY POINTS
· The value of Victoria's building completions fell 9.1 per cent in the March quarter.

· The fall in value in Victoria was the biggest in the nation.