Australia's Residential Building recovery is continuing according to preliminary ABS figures, which shows that activity improved in the final quarter of 2012.

 "Taken with other data published recently, these figures indicate that a tentative recovery may be underway in the Residential construction market," commented HIA Senior Economist Shane Garrett.

Total residential building volumes in the final quarter of 2012 were up by 1.7 per cent on the previous quarter, driven by "rather brisk" growth of 2.2 per cent in new house volumes.

The performance of residential building continues to show significant regional variation. Overall activity was strongest in the populous states during the final quarter of 2012. Nationally, residential construction volumes increased 1.7 per cent on the previous quarter. Growth was significantly stronger in Queensland (+8.7 per cent) and Victoria (+4.5 per cent). This is particularly welcome given the raft of weak data emanating from these particular states over the last couple of years.

However, the delicate state of the market nationally is confirmed by the fact that residential building declined in all other states. Tasmania's weak market recorded a 8.2 per cent fall in Residential Building Activity. While West Australia has performed strongly of late, the latest ABS data show that activity fell 7.5 per cent in the final quarter of 2012. South Australia (-2.1 per cent) and the ACT (-4.1 per cent) also saw reduced residential building activity.

While New South Wales residential activity dropped by 1.6 per cent in the last three months of 2012, the state's year on year growth registered an impressive rate of 6.3 per cent. This performance corroborates other recent data releases which show that New South Wales is experiencing some uplift in its housing market.

The figure below also indicates that renovations activity is providing important support to growth in several states like Victoria, WA and Tasmania. However, weak renovations activity has served to dampen growth in other states, most notably New South Wales and South Australia.

According to Shane Garrett, "it is encouraging that the actual volume of residential building work has increased for the second successive quarter following more than a year of declines. The fact that the pace of increase picked up supports the view that some momentum may be gathering in the sector. It is also welcome that growth is strongest in the most populous states."

 "However, residential building activity was only marginally ahead compared with 12 months earlier. This was due largely to the continued absence of growth in the area of alterations and additions," cautioned Shane Garrett. "International developments since the middle of 2012 have been largely benign but uncertainties continue to plague demand. Furthermore, key sectors of the domestic economy are struggling with the strong value of the Dollar," noted Shane Garrett.

"Nonetheless, fundamental factors indicate that the current level of residential building activity is below the economy's long term demands. It is incumbent on policymakers to ensure that activity is guided back up to its appropriate level in a timely fashion," Shane Garrett said.

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