Australia’s high-rise apartment building boom looks likes its got further to run yet.
According to the Australian Bureau of Statistics (ABS), building approvals jumped by 11.7% to 21,055 in November in seasonally adjusted terms, easing topping economist forecasts for a decline of 1%.
It was the third-largest monthly total on record, only surpassed by April and August 2016, the peak of Australia’s residential building boom.
In percentage terms, it was the largest monthly gain since November 2016.
Whether in seasonally adjusted or less-volatile trend terms, it now appears that approvals are starting to lift again having fallen throughout most of late 2016 and 2017.
All of the increase was driven by high-density dwellings, masking a drop in housing approvals during the month.
Private-sector dwelling approvals excluding houses — largely apartments — surged by 30.6% to 11,153 in seasonally adjusted terms, the largest amount since August 2016.
In Victoria alone, approvals for other residential dwellings surged to 6,359 in original terms, up 80% on the level of October and the highest level on record. That masked month-on-month declines in New South Wales and Queensland, other states that have also seen a sharp uplift in apartment construction in recent years.
In other words, the entire increase in November was almost entirely driven by Victoria.
“In our view, this likely owes to the approval of a single very large project, and clearly leaves the flow of approvals in unsustainable territory,” said Tom Kennedy, Economist at JP Morgan, in response to the Victorian spike.
The lift in approvals excluding houses completely offset a 2% drop in private sector housing approvals which fell to 9,779 over the same period.
From a year earlier, approvals excluding houses jumped by 36.8% while those for houses grew by a smaller 2.2%.
Combined, total approvals increased by 17.1% from November 2016.
Like the increase in total approvals, the value of approvals also soared during the month.
After seasonal adjustments, the value of total building approved rose by 9.4% in November.
Within that figure, the value of residential building soared by 14.8% while the value of non-residential building rose by a smaller 0.5%.
While a stellar report, suggesting that the outlook for residential construction will remain strong in the year, the question many will be asking is whether all of these approvals will translate to actual building starts.
Although strong population growth is underpinning housing demand, prices have started to weaken in recent months — beginning in Sydney and more recently in Melbourne — as attempts from APRA to curb investor activity in the marketplace begin to impact buyer demand.
Given that drop off in demand — seen also in auction clearance rates in both Sydney and Melbourne which have fallen to multi-year lows –it understandably will raise some questions as to whether all of these apartment approvals will actually make it to the construction stage.
On face value the bounce in approvals is an encouraging sign, but there’s still plenty of reason for caution given recent developments in the housing market.
“Given some mortgage rates have started to creep higher and macro-prudential policy will remain a binding constraint on mortgage growth for some time yet, we are inclined to fade today’s spike and expect payback in subsequent releases,” said Kennedy of JP Morgan.
“While a significant outperformance, it is important to note that the strength in today’s data was narrowly focused both geographically and by type of dwelling.”