- In seasonally adjusted terms, Australian building approvals had their biggest monthly decline in December for five years.
- The result followed a sharp spike in November after the approval of big apartment projects in Victoria.
- Adjusted for monthly volatility, building approvals declined by 1.7% in trend terms over the month, leaving them 3.3% higher for the year.
Australian building approvals fell heavily in December, recording the sharpest monthly decline in over five years.
According to the Australian Bureau of Statistics (ABS), approvals tumbled by 20% to 16,8591 in December in seasonally adjusted terms, missing economist forecasts for a decline of 7.6%.
It was the smallest monthly total since October 2016, and left total approvals down 5.5% on a year earlier. In percentage terms, it was the largest one-month drop since July 2012.
While an ugly headline result, putting the decline into perspective, the December drop followed an upwardly revised 12.6% increase in November.
Helping to explain the wild swings over the past two months, non-housing private sector approvals tumbled by 39.2% to 6,807 after seasonal adjustments, more than reversing a sharp spike recorded a month earlier.
It too was the lowest monthly since October 2016.
The steep decline left approvals for these types of dwellings — namely units — down 18.4% from December 2016.
In contrast, private sector housing approvals increased by 1% to 9,904 in seasonally adjusted terms, leaving them up a healthy 5.5% on a year earlier.
Eliminating the volatility seen in the ABS’ seasonally adjusted figures, total approvals fell by 1.7% in trend terms over the month, leaving them up 3.3% over the year.
Private sector housing approvals fell by 0.2% in trend terms while those for other dwellings slipped by a larger 3.2%. From a year earlier, both categories registered increases, lifting 4.9% and 2.3% respectively.
These figures are probably more reflective of the true trend in approvals right now.
As seen in the chart below, housing approvals are stabilising at elevated levels while those for other dwellings are now starting to weaken after a small improvement in the first half of 2017.
Like the total number, the value of approvals fell in both seasonally adjusted and trend terms in December.
“The seasonally adjusted estimate of the value of total building approved fell 17.8% in December,” the ABS said. “The value of residential building fell 25.4%, while the value of non-residential building fell 3.4%.”
In trend terms, the total value of construction fell by a smaller 0.3%, the first decline reported in 11 months. The value of residential approvals fell by 0.2% while non-residential approvals slid by a larger 0.4%.
While the December report snapped a strong run for approvals in the second half of 2017, it’s far too early to declare that December will mark the start of steep decline in the months ahead.
With the increased prevalence of apartment approvals creating havoc in the seasonally adjusted data given the scale of some developments, the trend data remains the best option to garner the true outlook for housing construction.
And rather than indicating that there’s going to be a sharp slump, it’s points to a slow and steady decline housing construction ahead, led by the apartment sector.
“While the monthly decline in approvals looks large, it just reverses the large lift in apartment approvals in the prior month which we noted at the time reflected one-off projects in Victoria, rather than that start of a new trend,” said Diana Mousina, Senior Economist at AMP Capital.
“Australian residential construction has been an important driver of economic growth over recent years but the peak of this trend has passed as the housing market cools and demand for new dwellings eases.”