- Australian building approvals fell sharply for a second consecutive month in December.
- Approvals to build houses and attached dwellings fell by 2.2% and 18.8% respectively. From 12 months earlier, approvals in these categories tanked 11.3% and 38% respectively.
- A total of 212,316 residential dwellings were approved last year, down from 224,871 in 2017.
- Australian capital city home prices fell by more than 1% in both December and January, marking the steepest downturn in the current cycle.
Australian building approvals tanked again in December, amplifying already growing concerns about the outlook for the economy.
According to the Australian Bureau of Statistics (ABS), total approvals slumped by 8.4% to 13,995 after seasonal adjustments, leaving the decline from 12 months earlier at an ugly 22.5%.
Not since June 2013 have total approvals been this low.
The largest falls during the month were seen in New South Wales, Victoria and Queensland, not only Australia’s most populous states but also, with the exception of Queensland, where home prices fell the fastest last year.
Over the entirety of the year, total approvals stood at 212,316, down from 224,871 in 2017 and the record of 232,232 set in 2016.
The steep drop in December followed an even larger 9.8% fall in November that was larger than the 9.1% level initially reported.
The decline was once again led by volatile private-sector attached dwelling approvals which tumbled by 18.8% to 4,712 during the month, leaving approvals in this category down 38% from a year earlier.
Approvals in this category were the weakest since July 2012. Including approvals earlier in the year, the calendar year total for attached dwellings fell to 92,650, down from 107,528 a year earlier.
Private sector housing approvals also weakened, falling by 2.2% over the month and 11.3% from December 2017. It was the lowest monthly total since December 2013.
Over the year, total approvals in this category rose to 119,668, slightly above the 119,142 level of a year earlier. However, that increase reflects strength in housing approvals in the first half of 2018.
The total value of residential approvals fell by 5.9% compared to November in seasonally adjusted terms. With the value of non-residential approvals falling by a larger 9.8% over the same period, the total value of newly approved work slumped by 7.5%.
The steep fall in approvals follows a noticeably acceleration in the speed of capital city property price declines late last year, led by 1%-plus falls in Sydney and Melbourne. Those trends have since continued into January, according to data released by Coreogic.
The ABS approvals figures also fit with a recent slide in activity levels in Australia’s residential construction sector, along with broad weakness in Australian new home sales.
Tighter home loan lending standards, along with growing expectations that home prices will continue to slide in the coming years, are widely believed to the chief catalysts behind the deterioration in housing market conditions in recent months.
“This data confirms that tightening credit availability and falling house prices are battering confidence in the residential sector,” said Robert Mellor, Managing Director of BIS Oxford Economics.
“With the final recommendations of the banking royal commission released today, the scales are tipping more towards added downside risk to the residential downturn.”
Gareth Aird, Senior Economist at the Commonwealth Bank, agrees with that assessment, suggesting the decline will be on the radar of policymakers at the RBA.
“In November 2018, RBA Deputy Governor Debelle’s noted there had been some tightening in credit for developers of residential property. Specifically, he stated that ‘the effect of a tightening in lending to developers seems to me to be a higher risk to the economic outlook than the direct effect of the tighter lending standards on households, which has ameliorated risk’,” Aird says.
“The trend in building approvals suggests that this risk is materialising.
“The drag on the economy from weaker residential construction activity looks set to be bigger than most economic commentators and policymakers originally envisaged.”