Australian building approvals bounce slightly but they're still way lower than a year ago

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  • Australian building approvals rose slightly in January after two months of steep falls.
  • From a year earlier, total dwelling approvals fell by 28.6%. Non-housing residential approvals more than halved over the same period.
  • The decline in residential approvals suggests housing construction will weigh on Australian economic growth over the next couple of years.

Australian building approvals bounced marginally in January after falling heavily in the prior two months.

However, they have still fallen substantially over the past year, pointing to a substantial drag on Australian economic growth in the quarters ahead.

According to the Australian Bureau of Statistics (ABS), approvals to build new dwellings rose by 2.5% to 14,365 after seasonal adjustments, driven by a modest lift in approvals to construct both new houses and other residential dwellings.

Private housing approvals rose by 2.1% to 9,423 in January, outpaced by a slightly larger 2.7% increase in dwellings excluding detached housing.

The headline 2.5% increase was slightly above the 1% lift expected by financial markets.

Despite the modest bounce in January, reflecting the impact of recent steep falls in approvals for both categories, total approvals still tumbled by 28.6% from January last year.

Within that headline decline, approvals to build new private sector houses skidded by 6.6%, far outpaced by a mammoth 51% decline in non-housing residential approvals.

“The trend in both is undeniably negative, continuing to point to a prospective decline in dwelling investment once the pipeline of work is completed,” said economists at the National Australia Bank.

Over the past 12 months, the total number of residential approvals, at 206,784, was the fewest since the total recorded in the year to October 2014.

Approvals to build new houses stood at 117,777 in the year to January, the smallest number since December 2017. In contrast, approvals to build other residential dwellings slumped to 89,007 over the same period, a level not seen since May 2014.

“Residential approvals are clearly trending lower,” said Kristina Clifton, Senior Economist at the Commonwealth Bank.

“Multi-unit approvals are showing the biggest falls, although approvals for houses are declining too.

“Falling dwelling prices are a factor weighing on approvals. There are also reports that developers are having more difficulty accessing finance than in the past.”

While total approvals increased in January, the value of residential work approved went backwards, falling by 2% after seasonal adjustments.

That result was more than offset by a 6.4% surge in the value of non-residential approvals over the same period, leaving the dollar value of all approvals up 1.3% from December.

“Non residential building approvals are off their recent peak but holding up at a reasonable level,” said Clifton at the CBA, adding that non-residential building work makes up around 45% of total business investment.

“Business investment looks to be one of the bright spots of the economy, with last week’s CAPEX data showing that non mining companies are planning to increase their investment spend by around 9% in 2018/19, with a further smaller increase expected the following year.”

However, Clifton says that expected increase looks set to be mitigated by weaker dwelling construction.

“Residential construction will remain supported in the near term by the solid pipeline of work underway,” she said.

“However falling approvals means construction work will soon be in decline.

“This will weigh on jobs growth in the construction sector.

“Lower residential construction also weighs on consumer spending for appliance, fittings and furnishings.”

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