Australian building approvals rose for the third month in four during September, seemingly defying expectations for a more pronounced slowdown.
According to the Australian Bureau of Statistics (ABS), approvals rose by 1.5% to 18,849 in September in seasonally adjusted terms, topping economist expectations for a decline of 1.0%.
Somewhat remarkably, that left approvals up 0.2% from a year earlier. Yes, up.
Private house approvals rose by 0.6% to 9,867, leaving the increase on a year earlier at 2.1%.
Private dwelling approvals excluding houses — largely medium and high-density housing such as units — rose by a larger 2.6% to 8,754.
While a low base effect from September 2016 helped, that left approvals in this category down just 2.4% from a year earlier.
Combined, it suggests that not only has the downtrend of the past couple of years slowed, it’s started to reverse.
The chart below helps to reinforce that point.
In trend terms, approvals rose by 3.4% in New South Wales, 2% in Western Australia, 1.5% in South Australia and 0.7% in Victoria over the month. Only Queensland, at 0.5%, recorded a decline over the same period.
From a year earlier, approvals rose by 19% in South Australia in trend terms, the fastest pace across the country. Over the same period, approvals were flat in Western Australia and New South Wales but fell by 2% and 5.3% respectively in Victoria and Queensland.
By dollar value, the ABS said the value of residential approvals rose by 0.1% in seasonally adjusted terms. In comparison, the value of non-residential work approved jumped by 22.4% following a 10.9% decline in the previous month.
Combined, the total value of work approved rose by 8.3% in seasonally adjusted terms, reversing weakness seen in the prior two months.
Although approvals still remain below the peak seen in 2016, the re-acceleration in recent months suggests that tailwinds from high population growth and low interest rates continue to support residential construction activity.
That’s important because many were concerned that residential construction would decline rapidly over the next few years, negatively impacting the broader economy as a consequence.
On what’s been seen recently, it doesn’t look like there’ll be a pronounced slump. If anything, it suggests the expected downturn may be far slower than what what many had first feared.
However, with house price growth starting to slow as a result of increased supply and tighter lending restrictions for investors, it could act as a headwind for construction activity should demand soften further.
That’s something to watch in the period ahead, but for the moment the recent uptick in approvals is promising.