Australian building approvals for January were released today to little fanfare.
According to the ABS, approvals rose by 1.8% to 17,412 in seasonally adjusted terms, slightly ahead of market expectations centred around a decline of 0.5%.
Despite the beat, that was still down 12.0% on the levels of a year earlier, further cementing the view that the cyclical peak in approvals was last year.
There was also a small downward revision to December’s figure, now reported as a drop of 2.5%, compared to the previous estimate of 1.2%, all but ensuring there was little interest in the report from financial markets.
On the surface, it was boring. A small beat accompanied by a downward revision essentially making the report in line with expectations.
However, digging deeper, there were some interesting tidbits for those who went looking, particularly surrounding housing approvals, often overlooked in this report given the recent focus on Australia’s high-rise construction boom.
Like unit approvals, those for unattached houses are also falling, and fast, with private sector approvals dropping by a further 2% in January, taking the decline over the past year to 9.4% in seasonally adjusted terms.
This chart from ANZ shows the drop in both attached and unattached approvals over the past 25 years. We’ve highlighted the slide in house approvals, shown in light blue.
To ANZ economists Daniel Gradwell and Felicity Emmett, the recent drop in this category is “noteworthy”.
“House approvals in January were the lowest since October 2013, and now sit 9% lower than a year ago,” they wrote following the release of the report.
“The fact that building approvals and construction of houses has barely moved for two decades largely reflects changing preferences and demographics such as our ageing population.”
However, that’s not the noteworthy factor, they say, suggesting that “the recent decline in house approvals perhaps also reflects the relative unaffordability of houses and land, given persistently strong price growth.”
It’s an interesting view many are sure to agree with.
Rather than helping to boost housing construction, high house prices may actually be inhibiting home building due to affordability constraints — not an ideal outcome given unit construction is expected to slow sharply next year.
It certainly fits with recent data released by Australia’s Housing Industry Association (HIA) earlier this year that revealed the median vacant residential lot price in Australia rose by 3.3% to $243,585 in the September quarter last year, the highest level on record.
And that has no doubt had flow on effects to house prices in Australia’s capital cities, particularly in Sydney and Melbourne, which continued to surge in February based off data released by CoreLogic earlier this week.
Given the slowdown in housing approvals over the past year, it be interesting to see whether recent strength in house prices will reverse or exacerbate the current trend in the period ahead.