Australian building approvals plunge to 5-year lows

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  • Australian building approvals slumped to the lowest level in over five years in November.
  • A total of 216,326 dwellings were approved over the year, the smallest number since February 2015.
  • The most acute weakness is being seen in other residential dwellings, namely units. Housing approvals are also weakening, but at a slower pace.

Australian building approvals tanked in November, driven lower by weakness in both the apartment and housing sectors.

According to the Australian Bureau of Statistics (ABS), approvals slumped by 9.1% to 15,465 in seasonally adjusted terms, a result that was well below market expectations for a smaller decline of 0.5%.

That left total approvals from November 2017 at a whopping 32.8%. The monthly total was also the lowest since August 2013, reflecting the impact of continued home price falls across many parts of the country, especially in Sydney and Melbourne.

By state, approvals fell by 14.6% in Victoria, 9.3% in New South Wales, 7.3% in Western Australia and 4.3% in Queensland during the month.

“Today‚Äôs data shows an ongoing significant pullback in residential apartment approvals, a sign that builders, unsurprisingly, are less keen to add to the residential pipeline in an environment of falling prices in Sydney and Melbourne,” said Kaixin Owyong, Economist at the National Australia Bank.

Over the year, a total of 216,326 dwellings were approved across the country, the smallest number since February 2015.

Private sector house approvals fell by 2.6% to 9,443 during the month after seasonal adjustments, leaving the decline over the year at 6.4%. The number of houses approved in November was the weakest since April 2017.

Fitting with the Performance of Construction Index (PCI) released by the Ai Group, private sector approvals to build other residential dwellings plunged by 17.9% to 5,885, the lowest total since June 2013.

From a year earlier, approvals in this category — largely reflecting apartment work — plunged by a massive 53.9%. While an ugly figure, it was amplified by a high base effect resulting from a 12,770 increase in this category back in November 2017.

Still, at more than 5-year lows, it’s now clear that Australia’s apartment building boom is now well and truly over.

Even the ABS trend series, designed to reduce volatility created by lumpy, one-off apartment developments in the seasonally adjusted data, was weak.

The ABS said total approvals fell by 2.3% in trend terms over the month, extending the decline from a year earlier to 18.3%. Approvals to build houses and other residential dwellings fell by 6.3% and 31.2% respectively from the levels seen a year earlier.

“The pull-back in approvals from historic highs is against the backdrop of softer demand, notably from domestic and international investors, additional supply coming onto the market and tighter lending conditions,” said Westpac economists in response to the report.

“High rise developments, which have been a key driver of this cycle, are correcting lower with further falls ahead as suggested by weaker site purchases by property developers.

“The cooling of the housing market will weigh on the economic outlook for 2019, including a likely trend decline in new home building activity.”

Mirroring the results by total approvals, the value of new residential dwellings approved fell by 3.9% after seasonal adjustments.

In contrast, and helping to cushion the weakness in the residential sector, the value of non-residential work jumped by 11.1%, leaving the total dollar value of approvals during the month up 1.5%.

“Non-residential building approvals rose in the month, and the trend appears to be stabilising at quite a high level,” said Owyong at the NAB.

“Office and Warehouse approvals have been holding up, and perhaps even lifting gradually, while approvals for retail and wholesale have been softening.”

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