Australian building approvals slumped by 6.9% in August, missing expectations for a decline of 2%. Despite the sharp decline, approvals rose 5.1% from a year earlier.
Reflective of weakness in high-density housing, approvals excluding houses tanked 16.9%, leaving the annual increase at 8.4%.
Partially offsetting that weakness, house approvals jumped 4.4%, an increase of 2.2% on a year earlier.
Explaining almost all of the weakness in the headline figure, approvals for apartments in a four storey or more block – always volatile given the lumpy nature of the developments – fell by 1,119 to 5,177, a decline of 21.6% on July.
The drop represented nearly 70% of the total decline recorded in approvals during the month, suggesting that the weakness in August may be temporary rather than the start of a trend.
Reflective of that view, while the August headline figure was weak, there was far better news looking at the trend seen over the past year.
In absolute terms, building approvals numbered 226,415, an increase of 13.1% on August 2014 and the largest annual increase on record.
Reflective of the surge in high-density housing construction seen in recent years, dwelling approvals excluding houses rose to 110,468, the highest total on record.
House approvals numbered 115,949 over the same period, the fastest growth recorded since September 2010.
As a ratio, dwelling approvals excluding houses as a percentage of all approvals jumped to 48.8%, also another record high.
Given the current trend, high-density unit approvals will soon outnumber those for houses, a remarkable statistic given they represented only 33% of all approvals just one decade ago.
Although approvals remain at elevated levels, David de Garis, senior economist at the NAB, believes the residential development pipeline is peaking, a familiar view seen in most research notes that have hit our inbox this afternoon.
“In all, approvals are still running at a high annual rate in trend terms of 228K, sufficient to keep the flow of work proceeding. In trend terms, there has been no net growth though this year in the number of dwellings approved,” said de Garis.
“While the lags between approvals and activity have lengthened and have been more variable given the preponderance of apartment approvals in this cycle, today’s report is another suggestion that as we move through 2016 and into 2017, the growth impetus from dwelling investment will fade.”
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