2 charts that show Australia's residential construction boom still has a long way to go yet

Photo: Ian Waldie/ Getty Images.

Australian building approvals rebounded strongly in June, soaring 10.9% having fallen 5.4% in May.

It was a stunning turnaround — the largest in percentage terms since July last year — driven largely by an enormous spike in unit approvals during the month.

While one approvals report does not make a trend, the impressive report suggest that the unwind in Australia’s residential construction boom may not be anywhere near as bad as some forecasts currently suggest, especially when it comes to housing construction.

As this chart shows, the trend in annual housing approvals in Australia’s eastern states — Victoria, Queensland and New South Wales — appears to be stabilising at relatively high levels.

Source: NAB

While only approvals — not starts or completions — this solid pipeline of work suggests that housing construction may be able to dampen the effects of the unwinding apartment construction boom, seen in the chart below.

Source: NAB

“While a lot of the focus on the cycle to date has been on the apartment market and the cooling in development projects over the past year or so, it’s becoming evident that detached home approvals are now trending higher in New South Wales, Victoria, and Queensland, likely reflecting the improving labour market and population pressures,” said David de Garis, economist at the National Australia Bank.

According to forecasts from Australia’s Housing Industry Association (HIA), new residential building starts are likely to fall to 177,000 in the 2018/19 financial year, well off the record peak of 232,000 of 2015/16.

“The multi-unit side of the market is expected to drive the downturn in residential building, with commencements on this side of the market projected to fall by 41% from peak to trough,” the HIA said.

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