House approvals at three year highs: CommSec
Building Approvals
Council approvals to build new homes fell by 5.0 per cent in April after rising by an upwardly-revised 3.5 per cent rise in March (previously +2.6 per cent). House approvals rose by 0.7 per cent and were up by 11.3 per cent over the year to April, the strongest annual growth rate in over three years.
Apartment approvals fell by 11.6 per cent.
In trend terms, overall approvals fell by 0.1 per cent. But trend house approvals rose by 0.9 per cent, the 15th consecutive monthly increase.
Over the past year 227,900 new homes were approved – a 13-month high but down from the record high of 242,775 in the year to August 2016.
Dwelling approvals across states/territories in April: NSW (+5.1 per cent); Victoria (-8.4 per cent); Queensland (+1.2 per cent); South Australia (+4.2 per cent); Western Australia (+21.0 per cent); Tasmania (+6.0 per cent). Trend terms: Northern Territory (+6.7 per cent); ACT (+14.8 per cent).
The value of all commercial and residential building approvals fell by 4.2 per cent in April and are down by 4.8 per cent on the year. Residential approvals fell by 4.3 per cent; new building was down 4.8 per cent; and alterations & additions fell by 0.3 per cent. Commercial building fell by 4.0 per cent in April after falling by 5.3 per cent in March.
Over the year, building approvals fell from a record high $126.7 billion in March to $126.2 billion in April. Annual commercial building approvals stand at $47.4 billion in April, down from a record high $48.3 billion in March.
What is the importance of the economic data?
The Bureau of Statistics' monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.
What are the implications for interest rates and investors?
Building approvals have declined from their peaks in August 2016, but approvals for houses are the strongest in annual terms in over three years.
But will these houses actually get built? That will largely depend on land availability. State governments, like New South Wales, have been selling off both land plots and state-owned housing across Sydney suburbs, raising revenue amid a decline in stamp duty receipts.
Strong population growth is supporting council approvals in Melbourne and Hobart. In a sign that the South Australian economy is picking-up, Adelaide approvals are at record highs on rolling annual basis.
The solid pipeline of residential and commercial building implies that the construction sector will continue to be a key driver of the Aussie economy in 2018/19. Rising building costs and strong job ads growth for engineers and construction workers suggests that inflationary pressures are building.
CommSec expects no change to official interest rates until early 2019. The extremely slow lift in wage and goods price growth suggests the first rate hike in the new cycle won’t occur until next year.
Ryan Felsman is a senior economist at CommSec.
