The biggest issue in the Australian economy remains the transition from the mining boom. Figures out late last week showed how quickly mining investment has shrunk, and how greatly the transition is dependent upon investment in dwellings. That’s a rather large concern, given worries about a housing bubble.

One graph can often convey what is going on with amazing clarity. This is the one that demonstrates why the end of the mining boom is a problem for Australia’s economy:

Now of course you do actually need to see more than one (don’t worry, there’ll be a few more to follow) but this one really cuts though to the crux of the matter.

Engineering construction in Western Australia and Queensland in the March quarter of this year was 29% lower than it was a year ago. In fact, it is now lower than it has been for four years.

Engineering construction is the big driver of investment. Without roads, railways, harbours and all other manner of infrastructure, a mine can’t operate. Nor can it ship what is dug up to China, Japan and the rest of the world.

While mining construction has fallen off a cliff, the non-mining states are yet to pick up the slack.

Prior to the mining boom in the early 2000s, the predominantly non-mining states of NSW, Victoria and South Australia actually contributed more to the nation’s overall engineering construction than did WA and Queensland. Now the two mining states contribute 60%.

And in the past year engineering construction in the non-mining mainland states fell 12%.

Engineering construction in WA and Queensland is currently 3% below where it was in June 2011, but it is 21% lower in NSW, Victoria and SA combined.

Essentially, when the engineering construction began to fall in the mining states, it also began falling in the non-mining states:

But whereas in WA and Queensland the drop in construction comes primarily from the falls in the private sector, in the south-eastern states the fall in infrastructure spending by the public sector is as much to blame.

Infrastructure spending for the private sector in those three states is now around 8% below what it was 12 months ago, but infrastructure spending for the public sector is 18% down on where it was.

The end of the infrastructure spending that came via the GFC stimulus and large upgrading of electricity distribution networks is now largely washed out of the economy. In its place the desired boom to come from the self-described “infrastructure prime minister” has yet to occur:

There doesn’t appear to be much coming down the pipeline from the public sector side of things either. Not only has the amount of work done for the public sector fallen 15% in value in the past year, so too has the value of work to be done:

The IMF recently suggested that Australia should “take advantage of record-low borrowing rates, and maintain the government’s net worth” by investing in debt-financed infrastructure investment. The IMF suggests the economic growth which such public investment would generate would “largely contain” any subsequent rise in our “(low) debt-to-GDP ratio”.

But for the moment we need to await Infrastructure Australia to develop its plan that will guide public spending over the next period (most likely until a change of government, at which point there will be another plan developed).

For now the housing boom is doing a lot of the lifting, and mostly it is the non-housing dwellings:

For all the talk of the “housing boom”, the growth in actual houses being approved for building is quite small. The boom is in non-house dwellings: townhouses, flats, units or apartments.

So important have they become that in May the number of non-house dwellings approved to be built very nearly equalled the number of approvals for houses, for the first time ever:

It is this growth that has led some to suggest there may be a glut of such development – especially in Melbourne.

The growth of investment in such dwellings, the concerns of oversupply, together with booming house prices off the back of record low interest rates, has spurred concerns of a housing bubble.

The growth of building approvals is most pronounced in Victoria and NSW, whereas in WA, as with engineering construction, dwelling approvals have fallen:

The worries of the housing bubble are compounded given the decline in engineering construction in the south-eastern states.

For the moment, it would seem the transition from the mining boom is based on all the eggs being put into the housing basket. It’s not a basket that we want to see dropped.