The Housing Industry Association (HIA) has released a new discussion paper entitled “The Profile for Residential Building Approvals by Type and Geography”, which assesses conditions across five categories of building approvals ranging from detached houses at one end to units of 4 or more storeys at the other.
Below are the key extracts:
The chart below shows that in the current cycle building approvals began to rise from mid-2012. It took until late 2015 for the cycle to peak and approvals have subsequently maintained very high levels from a historical perspective. Australia’s latest new home construction cycle, for which building approvals formed a very accurate lead indicator, is the longest and largest in the nation’s history. This has produced very healthy outcomes for the broader Australian economy.
The December 2016 numbers for ABS Building Approvals (the latest available data) confirm that we have passed the peak for this cycle. However, actual residential construction activity will remain healthy throughout 2016/17 and into 2017/18 due to the continuing gap between building approvals and new dwelling commencements (starts).
In monthly terms building approvals peaked in October 2015 at a level of 21,546. The annual peak for building approvals was a staggering 241,561 over the 12 months to November 2015.
In calendar year 2016 building approvals reached a level of 230,813 compared to 240,009 in 2015… This trend is consistent with continued healthy levels of new dwelling commencements and residential work being done in 2016/17 and into next year…
Comparing the December 2016 quarter to the December 2015 quarter, there was a decline in approvals nationwide of 14.2 per cent (in unadjusted terms, see chart below).
Different jurisdictions played varying roles in this overall result. The main drivers of this annual change in the December 2016 quarter were New South Wales (-6.4 percentage points) and Queensland (-4.9 percentage points). Contractions were also evident for: Western Australia (-1.5 percentage points); and Victoria and South Australia (-0.9 percentage points in each instance). Tasmania had a minor – 0.1 percentage point result. In terms of the number of building approvals, the decline in NSW (-3,884) acted as a large drag on the national outcome (-8,560)…
Seasonally adjusted building approvals for detached houses totalled 28,275 in the December 2016 quarter, a level 2.2 per cent lower than in the September quarter of 2016.
Total approvals for ‘other dwellings’ – usually referred to as ‘multi-units’ numbered 22,900 in the December 2016 quarter. That level was 26.9 per cent lower than the approvals in the September quarter of 2016. In the 12 months to December 2016 approvals were 5.5 per cent lower than in 2015.
The overall profile for detached house approvals in 2016 suggests this segment of the new home building market remains in relatively healthy shape in early 2017.
Drilling down from this aggregate profile we consider five categories of residential building approvals. Comparing the December 2016 quarter to the same period in 2015, all of the five categories of dwellings recorded a decline in approvals: detached houses (-5.8 per cent); semi-detached, row, terrace or townhouse homes (-10.1 per cent); flats or units in 1 or 2 storey buildings (-21.9 per cent); flats or units in 3 storey buildings (-25.8 per cent); and flats or units in 4 or more storey buildings (-27.4 per cent). All the categories combined recorded a national decline of 14.2 per cent…
Conclusion
Australia’s new home-building boom looks set to taper off from 2017. Building approvals for new housing have faded (moderately) in the past year, but they didn’t tank. ABS building approvals figures show that the number of houses and ‘other dwellings’ approved in 2016 were lower than in 2015 by less than 4 per cent.
This outcome is not a precursor of any serious declines in new dwelling commencements in the first half of 2017. The steady trend in detached house approvals suggests that actual activity will similarly remain reasonably healthy in the short term. A slightly more positive short term outlook applies to semi-detached type approvals. Overall, we retain our long held outlook for continued healthy levels of new home construction in 2016/17, and to a lesser extent in calendar year 2017…
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
