Finance Consumer Cranes in the sky: What fixed crane numbers say about the economy

Cranes in the sky: What fixed crane numbers say about the economy

Cartoon cranes on a city skyline.
The number of cranes on a city's skyline can tell a lot about its economy. Photo: The New Daily
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The monolithic steel cranes looming over city centres aren’t just awe-inspiring monuments to human ingenuity, their prevalence also serves as an indicator of economic strength.

That’s the theory sitting behind the ‘crane index’ – a routinely published data set collating the number of cranes operating around the country.

The index – put together by construction consultancy firm Rider Levett Bucknall – records the total number of cranes in the country, as well as breaking it down into individual cities and whether or not those cranes are involved in residential or non-residential construction.

That’s important information for economists because it serves as a barometer of construction industry health.

In short, fewer cranes in a city typically means less building activity, with the opposite also being true. From that, economists can glean quite a bit of information.

Reading the index

In the first quarter of 2019, Australia’s skylines were punctuated by 753 cranes, 530 of which were residential. 

That’s an interesting tidbit, but what does it actually mean, and why should we care? 

One use for the crane index, AMP chief economist Shane Oliver told The New Daily is as an indicator of a country’s general economic health.

More cranes suggest more demand for housing and offices in the market, while simultaneously signalling healthy employment within the construction sector.

However, the crane index is more frequently used as an indicator for what might happen in the property market, because the residential crane numbers provide a useful glimpse into future apartment supply.

“It’s another overlay to other data sources like council approvals and construction starts,” Mr Oliver said.

In effect, a large volume of cranes working on residential projects in a city means a large number of apartments are set to hit the market in that city too, adding to the overall housing supply.

An increase in the number of available apartments in a city also plays with the supply-and-demand dynamics of that city, putting downward pressure on prices, meaning cities with a large number of residential cranes dotted along their skyline can expect apartment prices to ease in the future too.

The same is true for offices, Mr Oliver said, but non-residential construction tends to come and go in “quite intense cycles”, spurred on by large-scale projects like the Barangaroo development in Sydney.

What about the latest index?

Back to the 753 cranes identified in the March crane index.

Breaking down those numbers shows that the number of new apartments in the pipeline is starting to decrease across most cities, Mr Oliver said, but Melbourne’s record of 222 cranes means house prices could fall further yet.

Overall, Mr Oliver said the number of cranes across the country appears to have peaked and has started its downward climb – something backed up by falling construction approvals.

Residential construction in particular looks set to ease up rapidly and that will mean it’s up to other construction sectors, such as infrastructure, to pick up the slack “or times will get tough for the economy”.

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