- Australian building approvals fell sharply in March, reversing a large increase in February. Unit approvals once again drove the volatility.
- A total of 199,428 new dwellings were approved over the year, the fewest since August 2014.
- A steep drop in apartment approvals, along with a smaller decline in house approvals, has seen the pipeline of new residential construction work decline 17.7% from the peak in mid-2016.
- The value of both residential and non-residential approvals fell sharply from February. The total value of new building work approved fell 14.4%.
Australian building approvals fell sharply in March as an unusually large spike in apartment approvals in February was reversed.
According to the Australian Bureau of Statistics (ABS), approvals to new dwelling approvals slumped by 15.5% to 14,429 (all figures seasonally adjusted unless specified), largely reversing a 19.1% spike reported a month earlier.
Markets had been looking for a smaller decline of 12.5% during the month.
The decline left approvals down a substantial 27.3% from March 2018.
Over the year, a total of 199,428 new dwellings were approved, the first time since May 2014 that annual approvals dipped below the 200,000 level. They’ve now fallen 17.7% since peaking in August 2016.
115,510 private sector houses were approved over the year, the fewest since August 2014. At 83,917, attached private sector dwellings now sit at levels last seen January 2014.
Yet again, the volatility in March was caused by private sector attached dwelling approvals which tanked after spiking a month earlier.
They tumbled by 30.6% to 5,588, leaving them down 38.8% from a year earlier. Private sector unattached house approvals also fell, sliding 3.2% to 8,635. From a year earlier approvals in this category skidded by 18.3%.
Over the month, approvals tumbled by 27.4% and 27% respectively in New South Wales and Victoria, Australia’s most populous cities that have seen the largest price falls over the past year.
“The fall in approvals is not surprising given the record amount of residential construction activity that has taken place over the past five years,” said Kristina Clifton, Senior Economist at the Commonwealth Bank.
“Approvals also tend to follow trends in house prices. House prices have been falling since late 2017.”
Smaller falls of 2.4% and 2% respectively were reported in Queensland and South Australia. Western Australia managed to buck the broader trend with approvals lifting 4.8% from February.
In trend terms, perhaps a better gauge on the pipeline of potential residential construction work given it helps to cushion the wild swings created by large-scale and lumpy apartment approvals, the news was equally ugly with approvals nationally sliding 0.6% over the month and 22.4% over the year.
In trend terms, total approvals haven’t been this low since June 2013.
Private sector attached dwelling approvals actually rose by 0.8% during the month, offset by a 1.4% decline in approvals to build unattached private sector dwellings.
Over the year, approvals in these categories fell by 31.5% and 14.7% respectively.
Mirroring the slide in total dwelling approvals during the month, the value of newly approved worked also tumbled by 17.6%.
Worryingly, the value of non-residential work also fell 8.7%, leaving the total value of new building work approved down 14.4% from February.
“The [building approvals] update again points to weakening underlying momentum, highlighting downside risks to the near term outlook for new dwelling construction,” said Andrew Hanlan, Senior Economist at Westpac Bank.
As a major part of the Australian economy, and the third-largest employer in the country behind healthcare and retail, the downturn in building approvals creates downside risks for both GDP and employment growth in the period ahead.
“Further weakness seems likely given approvals of houses are still falling and tight credit conditions for high-rise apartments, although lower interest rates may temper the decline,” said Kieran Davies, Economist at the National Australia Bank.
“We expect investment to fall by 18% through to 2020 as the remaining high-rise apartment projects are completed, which is close to double the Reserve Bank’s forecast decline.”
Davies says the RBA is likely to “significantly downgrade its outlook for housing construction in the 10 May Statement on Monetary Policy”.
Business Insider Emails & Alerts
Site highlights each day to your inbox.