Approvals decline for Sydney and Brisbane units: Pete Wargent

Building Approvals declined by 5.2 percent in May to be 9.2 percent lower than a year ago in seasonally adjusted terms. 

 

Somewhat optimistically the "trend" result is still recording a rise, but it does appears that the peak of the building approvals boom has now passed. 

A couple of observations.

 

Firstly, although this was clearly a weaker result than last month's bonanza - one which probably at last signifies the beginning of the end for this construction cycle - the hyperbole in reporting can get overblown.

 

There were after all some 19,706 dwellings approved in May (in original terms) - down from a massive 20,612 in April - historically very high numbers, and higher than had ever been seen until the last quarter of 2014.

 

whether or not all of these dwellings all get built is another matter. 

 

In rolling annual terms total approvals fell to 233,900 down from a peak of 240,130 in October 2015, comprising of 117,300 houses and 116,600 units, townhouses and apartments. 

At the capital city level, approvals in Melbourne have recorded four very strongly monthly readings in a row, taking annual detached house approvals for the Victorian capital up to a fresh cyclical high of 25,600 (a crunching 57 per cent more than Sydney over the same period). 

 

This chart is worth noting when folk talk about a so-called "oversupply" in Sydney - a lasting oversupply not quite so easy to achieve at the city level when you are building so few detached houses into romping population growth. 

The monthly decline in approvals was driven by huge declines in attached approvals in Sydney (from 3,777 to 2,900) and especially Brisbane (2,500 to 1,062). 

 

That said, there were some sneaky upwards revisions totaling more than 1,800 additional dwellings to previously reported figures, and three quarter of these related to New South Wales and Queensland. 

Overall, although it's a volatile data series it does look as though the unit and apartments approvals boom has passed its peak.

 

Approvals in Western Australia have now been trending down since September 2014, which should help to bring the rental market back into equilibrium in due course. 

This cycle has been characterised by the approval of greater volumes of 4+ storey dwellings than ever before, with more than 70,300 approved over the past year alone - an astonishing 57 times more than we saw in 1992.  

 

The most recent data suggests that high approvals are starting to wane, though, especially in Victoria where a glut of high rise approvals was pulled forward into 2015.  

 

Overall, another very strong result, but there are now multiple indicators suggesting that the peak of the construction cycle is all about upon us.

 

One of these days we'll all be able to say we called it!

 

All eyes will be on the Reserve Bank of Australia at 2.30pm, in particular to determine the wording of their policy statement.

 

Will an easing bias be reinstated ahead of a possible August interest rate cut?