Australian building approvals are plummeting

Charly Triballeau/AFP/Getty Images

Australian building approvals plunged again in October, according to new data released by the ABS on Wednesday.

After seasonal adjustments, approvals slumped by 12.6% to 16,279, following a 9.3% drop in September that was larger than initial estimates.

It was the smallest monthly total since September 2014, and the largest percentage drop seen in 11 months.

Compared to the levels seen in October 2015, approvals tumbled by 24.9%, the largest annual percentage drop since October 2011.

Indicating that the weakness was broad based in nature, approvals fell in all states and territories apart from the ACT.

If there was any debate as to whether we’ve seen the peak in building approvals for the current cycle, it is surely over now.


Private house approvals fell by 3.4%, more than reversing the 1.5% increase reported previously, leaving the year-on-year drop at 5.7%.

Overshadowing that decrease, and explaining the drop in total approvals, those for dwellings excluding houses — almost entirely apartments — dropped by an enormous 24.8% from September.

It left approvals in this category down 42.6% from the levels of a year earlier.

A worrying development, excusing the pun, particularly following a sharp drop in new home sales in October which fell to a more than two-year in October, according to the HIA.

Over the past year, total private sector approvals numbered 229,706, the smallest annual increase since July 2015.

Private housing approvals totaled 115,964, the smallest number since February last year, while those for dwellings ex-houses dropped to 113,741, the lowest level since August 2015.

Though total approvals remain at elevated levels, it’s clear that they’re now starting to roll over.


The drop in total approvals was, unsurprisingly, mirrored by the value of work approved.

It fell 30.3% in October in seasonally adjusted terms, following a rise of 27.1% in the previous month that was driven entirely by a spike in the value of non-residential construction.

Non-residential construction fell by 46.9% following a rise of 102.6% in the previous month, while the value of residential approvals slid by 15.2%, the third consecutive decline in a row.

Within this category, the value of new residential approvals fell 18.4% to $4.55 billion, the weakest level since October 2014. That was partially offset by a boost to alterations, additions and conversions which rose by 15.2% to $679.6 million.

David de Garis, senior economist at the National Australia Bank, expressed concern over the October result, writing shortly after its release that it “points to real risks that the dwelling activity cycle over the next one to two years will now likely be softer than previously expected unless demand and finance soon come to the rescue”.

It also fits with sentiment expressed by Australia’s HIA earlier this month in which the group said that Australia’s residential building boom is likely to slow sharply over the next two years, led by a sharp pullback in apartment markets.

“Multi-unit building, especially apartments in the Eastern States, has driven much of the growth in this cycle and is also forecast to lead the slowdown in new activity over the next couple of years,” said Warwick Temby, HIA acting chief economist.

“From their peak of 117,000 in this calendar year multi-unit commencements are expected to fall by over 40 per cent by 2018/19.”

While approvals in this category have only fallen 5% over the past year compared to the levels seen in the 12 months to October 2015, from a monthly perspective, they now sit 40% below the levels reported only three months ago.

Though this category is volatile at the best of times, further weakness in the months ahead will only add to concerns that the residential construction downturn will be been even more acute than what many currently expect.