Australian building approvals spiked in February

Photo by Masashi Hara/Getty Images for FIVB

Australian building approvals jumped sharply in February, led by renewed strength in both house and apartment approvals.

According to the ABS, approvals rose by 8.3% to 18,995 in seasonally adjusted terms, well above the 1.5% decline expected by economists.

Despite the strength, the figure was still down 4.9% on the levels of a year earlier, reinforcing the view that approvals are now past their cyclical peak.

By type of dwelling, private house approvals rebounded by 5.3% to 9,330, the largest increase in percentage terms in the past 14 months.

Private approvals, excluding houses (almost entirely units), jumped by a larger 10.9% to 9,381, building upon the 8.3% increase reported in January.

From a year earlier, approvals in both categories fell by 5.4% and 3.8% respectively.

This chart from ANZ shows the monthly seasonally-adjusted and trend movements for house and attached housing approvals going back to 1990.

Source: ANZ

The strength in approvals was driven entirely by New South Wales and Queensland, surging 19.6% and 33.7% respectively, according to calculations from UBS. And it was largely driven by booming apartment approvals in both states.

Elsewhere, approvals fell by 8.8%, 5.5%, and 2.5%, respectively, in Victoria, Western Australia and South Australia. In Australia’s other states and territories, total approvals fell by 15%.

In dollar terms, and mirroring the strength in total number of buildings approved, the value of approvals jumped by 19.9% in seasonally adjusted terms following a 3.0% drop in January.

The value of residential building rose 13.9%, the fourth increase in four months, while the the value of non-residential building surged by 34.5% following a decline of 16.9% in January.

At $6.85 billion, the value of residential approvals was the highest level on record. The value of new residential dwellings approved rose by 13.9% to $6.16 billion — the second-highest monthly amount on record — while those for alterations and additions, including conversions rose by 14.4% to $687.5 million.

Despite the strength in approvals registered in February, John Peters, senior economist at the Commonwealth Bank, suggests that approval levels in 2017 are likely to be lower than those reported in 2016.

“Total approvals came to 231,000 in 2016, which was just below the very robust level of 240,000 approvals in 2015,” he says. “We expect approvals to slow again to 212,000 in 2017.”

Peters says the anticipated decline is expected to be led by unit approvals rather than approvals for detached houses.

“Declining rental yields, the most recent tightening of macro prudential measures by APRA and more talk of RBA rate hikes as the economy picks up further momentum in the second half of 2017 will help damp down the still resilient housing demand and activity evident in today’s numbers,” he says.