Australian building approvals fell heavily in November, posting a decline of 12.7% to 17,124.
The decline, more than four times larger than the 3% fall expected, left approvals down 8.4% from a year earlier after seasonal adjustments.
In numeric terms, the monthly total was the smallest recorded since September 2014.
Dwellings approvals excluding houses – namely apartments – slumped by 24% to 7,728, leaving the annual figure down 15% from a year earlier.
Detached housing approvals fell by a smaller 0.6% to 9,396, leaving the annual decline at 2.2%.
The huge slide in apartment approvals saw the annual total for the category decline for the first time since October 2014. Despite this, at 116,100, they still outpaced detached housing approvals over the same period which numbered 115,966.
With approvals falling for both high density units and detached housing, the value of total building approved fell 5.0%, led by a a 10.2% drop in residential approvals. The value of non-residential building rose 7.3% following a fall of 0.5% in the previous month.
While true that approvals for high-density apartments are volatile – one look at the first chart shows that they bounce around regularly month-to-month – the weakness in this category and detached housing suggests that total building approvals may have already hit their cyclical peak.
Although they remain near historic records, something that suggests the pipeline for residential construction will remain strong in 2016, it must be remembered that these are only approvals, not actual construction starts.
Given recent signs of softening in Australia’s residential housing market, it suggests that some building approvals – particularly for high-density apartments – could be at risk of never reaching the construction stage.
Auction clearance rates are falling, off-the-plan apartment prices are weakening in inner city Melbourne while lending to housing investors – those who were typically most active in the apartment market – has been drying up due to stricter lending criteria being applied to lenders by Australia’s banking regulator, APRA.
With demand for housing now weakening from what were lofty levels, not only are some more marginal developments now at risk of not being built, but also the likelihood that the weakness seen in November may be start of a longer-lasting trend.
Definitely something to watch in the months ahead, particularly as residential construction will need to remain strong in 2016 to help offset the drag from the unwinding mining sector construction boom.