Our MSHAUS indicator provides a reliable 3-quarter lead on building approvals. As of March, total approvals have fallen -20% yoy to 198kpa. We expect a further decline to 160kpa by 4Q18, largely driven by a normalisation in the multi-dwelling segment. While the backlog of approvals not yet completed remains high, we expect some projects to be shelved given tighter credit conditions.
While our MSHAUS indicator has a less strong relationship with price growth, it remains a useful framework. Over its post-1991 history, the divergence between MSHAUS and dwelling price growth over the 12 months to April 2017 (driven by >15% Sydney and Melbourne) was unprecedented. However, fundamentals remain weak, and both debt service and credit supply are tightening further, flagging a plateau in dwelling prices.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
