Building Approvals

<html><body><p>While Victorian building approvals slowed during the pandemic, they are already starting to improve, according to m3property Victorian managing director, Luana Kenny.

Ms Kenny expects the inner city apartment market will struggle at least until international students return and borders reopen.

But also that most parts of Melbourne and regional Victorian towns are poised for further price growth, she told the Australian Property Institute and REIV State of the Market seminar.

“The owner occupier market remains incredibly robust as demand outstrips supply but as workers return to the CBD and hospitality opens up, we’ll see a rise in tenants seeking properties in the city.

“It is likely major apartment developments will remain on hold until we see how the economy recovers but as Australia is viewed as a safe place, it is expected foreign students will return which will bring life back into the CBD and city fringe precincts,’ she forecast.

Demand for units in Melbourne’s inner and middle ring suburbs has been good as a result of a strong owner occupier market, she said.

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Most parts of Melbourne and regional Victorian towns are poised for price growth, she told the Australian Property Institute and REIV State of the Market seminar.

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Owner occupiers to drive Victorian apartment sales momentum

<html><body><p>The latest dwelling approval data reveals a big gap opening up between house and apartment construction.

IFM economist Alex Joiner advised there had been a "big pullback in building approvals."

Approvals for apartments and townhouses dropped by 22 per cent year on year, the lowest level approved since January 2012, in seasonally adjusted terms.

The approvals were down 39 percent month on month with $5bn of new residential builds committed in the month.

ABS construction statistician Daniel Rossi anticipates the HomeBuilder scheme would continue to support the residential construction sector for the next few months.

“The surge in HomeBuilder applications at the end of 2020, as well as the extension of the program to March, will continue to provide support for private house approvals in the coming months,” Mr Rossi said.

https://twitter.com/IFM_Economist/status/1366548452486705152

But the relative weakness in higher-density approvals compared with the detached segment reflects the headwinds of the pandemic, "particularly very weak migration flows," James Foster, the global macro analyst noted.

Foster suggested the migration restraints were "weighing on developer forecasts for demand."

Approvals need to rebound sharply to match forecast required commencements, UBS economist George Tharenou told The Australian Financial Review, however TD economist Stephen Koukoulas suggested the pullback "may go someway to alleviate the looming oversupply issue."

By contrast to high density approvals, approvals for private houses fell 12 per cent in January to 12,100, following their HomeBuilder-induced all-time December high, to be 38 per cent higher than in January 2020.

Approvals for houses also fell across all states in January.

The HomeBuilder stimulus measures had mostly been directed towards the detached segment of the market, Foster noted.   

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January dwelling approvals fell from their HomeBuilder high in December, but are still sit at elevated levels.

Big gap emerging between house and apartment construction

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<p><span>GUEST OBSERVER</span></p>
<p><span>Our forecasts for global growth to stay around the 31⁄4% yoy mark remain basically unchanged; a sub-trend outcome that falls well short of the IMF’s rosier predictions. The hard data provides no evidence that overall global growth has picked up and our leading indicators suggest further stagnation through to September. The bursting of the share market bubble will probably only worsen China’s trend slowdown. </span></p>
<span style="line-height: 1.3em;">The main issues of market focus are the likely timing of US/UK interest rate increases, the recent devaluation of the CNY (intended to align the currency more with market expectations and support exports), and the implications of measures Chinese authorities have used to prop up the share market. Apart from that, bond yields have reversed some of their recent recovery from exceptionally low levels. Facing an improving labour market, we think the Fed will start lifting rates in September, although they have signalled that the process will be gradual. Given recent USD strength, it is not yet clear whether the devaluation of the CNY will have any consequences for the timing of Fed rate hikes. </span>
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<span style="line-height: 1.3em;">The decline in Chinese share prices from the mid-June bubble peak has wiped out a significant amount of market capitalisation. However, as investors only held recent paper gains for a short time the consequences on spending behaviour may prove to be relatively limited. If investors have borrowed heavily on margin to then face margin calls, there is potential for broader problems.</span><br><br><span style="line-height: 1.3em;">The disappointing trends in global industrial output and trade have continued. Industrial growth was disappointing in March quarter 2015 and the June quarter is shaping up to be even weaker. World exports are faring even worse with volumes trending down, mainly because of poor Asian data. The strong $US has depressed trade flows but there is also an underlying weakness. There is, however, a more fundamental problem at work with export volumes falling below year-earlier levels and faring worse than global trade. Commodity prices have fallen heavily, lowering export earnings and national income across a range of primary exporting countries. Lower commodity prices do boost incomes and spending power in importing economies but the immediate impact on global activity could be negative.</span><br><br><span style="line-height: 1.3em;">After a disappointing start to the year, economic growth in key advanced economies picked up in the June quarter. Business survey results look better in the Euro-zone, despite the Greek crisis, with the upturn broadening out to include services activity. Monthly Japanese business surveys also look slightly better</span><span style="line-height: 1.3em;">, </span><span style="line-height: 1.3em;">but the quarterly GDP figures are volatile and kicked up in March, posing the risk of a slowdown in June. Canada is the weakest G7 economy with GDP falling through the first 5 months of the year as investment activity falls. </span>
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<span style="line-height: 1.3em;">The acceleration in US and UK growth in June continues the trend recovery trajectories seen through the last few years in their economies. Timely monthly business surveys generally point to ongoing moderate growth. This growth is generally broad-based with upturns in both the manufacturing and services sectors with the US and UK service sectors being the stand-out performers for growth</span><span style="line-height: 1.3em;">, </span><span style="line-height: 1.3em;">whereas Japan has been the laggard when it comes to growth in all areas.</span><br><br><span style="line-height: 1.3em;">Given that the emerging market economies have been the main drivers of global output growth in recent years, the slowdown in China along with very weak outcomes in Brazil and disappointing data in India all present a major headwind to the world economy. The monthly trade volume and industrial output data that allows us to track how the emerging economies are faring does not look positive, signalling that there is little sign of an imminent upturn in their growth momentum. The monthly data for China and India continues to show a slowing trend in the pace of growth. </span>
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<span style="line-height: 1.3em;">Recent trade figures have been particularly soft but there is also evidence of a softening in expansion across key sectors of activity like fixed investment spending in China and infrastructure output in India. The People’s Bank of China surprised markets with a large devaluation of the renminbi in mid-August – signalling a greater role for markets in setting the exchange rate in the future. This move may also provide support for struggling exporters. The picture is even worse when we turn to the other emerging market economies in East Asia and Latin America. Industrial output and exports are falling in both regions as sluggish global trade and weaker commodity markets take their toll.</span><br><br><span style="line-height: 1.3em;">Overall our global forecasts have been left broadly unchanged in 2016 (3.3%) and 2017 (3.4%), although this sub-trend outcome falls well short of the IMF’s rosier predictions. The hard data provides no evidence that overall global growth has picked up and our leading indicators suggest further stagnation through to September.</span><br><span style="line-height: 1.3em;"> </span><img src="file:///page1image41080" alt="page1image41080" width="0.720000" height="12.180000" style="line-height: 1.3em;"><img src="file:///page1image41240" alt="page1image41240" width="3.660000" height="0.600000" style="line-height: 1.3em;"><img src="file:///page1image41400" alt="page1image41400" width="0.720000" height="12.120000" style="line-height: 1.3em;"><img src="file:///page1image41560" alt="page1image41560" width="3.600000" height="0.600000" style="line-height: 1.3em;"><br><span style="line-height: 1.3em;">Australia: The economic outlook remains mixed and patchy. Mining investment is declining sharply, public spending is limited and national income growth is weak amidst declining commodity prices. Meanwhile, monetary policy is highly stimulatory and the AUD is acting as a shock absorber, with tentative evidence of recovery in non-mining activity. Our GDP forecasts are marginally stronger than last month – 2.4% in 2014/15, 2.8% in 2015/16 and 3.2% in 2016/17 – with domestic demand weak and net exports making a large contribution. </span>
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<div class="column"><span style="line-height: 1.3em;">The unemployment rate is forecast to stay around 61⁄4% before easing slightly into 2016/17. Central forecast is for the RBA to hold rates steady, with the next move likely to be up, but not till late 2016.</span></div>
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<span style="line-height: 1.3em;">Recent exuberant readings on business confidence were pared back in July. While confidence eased in most industries, much of the change stemmed from mining and construction firms (which includes a large share on non-residential and engineering firms), suggesting an escalation in Chinese growth concerns could be putting firms on alert. Confidence fell back below the long-run average but remains positive and the trend has held up around average levels. Business conditions also dropped back. Looking through the volatility in conditions and confidence, however, suggests a turnaround in the non-mining economy. Yet, leading indicators from the Survey – such as forward orders and capacity utilisation – generally eased.</span><br><br><span style="line-height: 1.3em;">The labour market appears to be performing more strongly than suggested by traditional relationships with economic activity at present. The average pace of employment growth has strengthened, which has been enough to stabilise the unemployment rate between 6 and 6.3% over the past year. The July reading of 6.3% likely reflects some statistical noise (as it was accompanied by an unusually sharp increase in the participation rate) and we expect some retracement. </span>
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<span style="line-height: 1.3em;">Readings from various forward-looking measures of the labour market are mixed, but in general suggest employment growth should be sufficient to stabilise the unemployment rate in coming months. Capacity utilisation, which has historically led the unemployment rate, continues to improve and the employment series in the NAB survey (while soft) is suggesting job creation of 15k per month - enough to keep pace with now slower population growth.</span><br><br><span style="line-height: 1.3em;">Consumers remain cautious, but spending has picked up moderately with growth in retail sales volumes accelerating a little in Q2. Retail sales for the month of June were particularly strong (both traditional and online), which could partly reflect spill-over from small business spending encouraged by Budget measures targeted at micro-businesses. Rising dwelling investment in the Eastern states could be another factor behind strong household goods sales. Nevertheless, consumers are nervous, with unemployment expectations high. Against a backdrop of subdued household income growth, we expect a modest pick up in consumer spending growth through to 2017, underpinned by a gradual decline in the household savings rate.</span><br><br><span style="line-height: 1.3em;">Dwelling prices in Australia have risen to 11.1% in the year to July according to RP Data- Rismark. Strength remains concentrated in Sydney (18.4% y/y) and Melbourne (11.5%), but more moderate in the other states and negative in Perth (-0.6%) and Darwin (-5.3%). Undersupply of housing is particularly prevalent in Sydney, and to a lesser degree Melbourne. These markets are also being supported by foreign demand, as well as investor demand, which should slow somewhat as APRA attempts to limit growth in investor housing credit to 10% y/y (currently at 10.7%). Overall we see Australian house price increases to be around 6.1% in 2015 and slowing to 3.0% in 2016, a rate more consistent with household income growth.</span><br><br><span style="line-height: 1.3em;">The outlook for mining investment remains starkly negative, with recent falls in commodity prices further questioning the viability of marginal projects. Dwelling investment is helping to plug the gap, although it’s potential to do so is limited by its small share of GDP (5%). Higher density developments (namely in Sydney and Melbourne) are contributing significantly to the construction pipeline, and the long lag times for these projects means high levels of approvals should drive further growth in construction until late 2016. In other sectors, trend improvement in business conditions, confidence and capacity utilisation (despite the payback in July), suggest an improving outlook for business investment. </span>
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<span style="line-height: 1.3em;">However, non-residential building approvals remain weak and firms are reporting very high required ‘hurdle rates of return’ (13%) before investing. Indicators of medium-term investment expectations are at best mixed, with the ABS capex survey suggests an outright decline in non-mining capex in 2015/16, while the NAB Business Survey measure of capex intentions suggest a slightly less pessimistic outlook.</span><br><br><span style="line-height: 1.3em;">Our GDP forecasts are marginally stronger than last month – 2.4% in 2014/15, 2.8% in 2015/16 and 3.2% in 2016/17. Despite recent volatility in the labour market figures, our peak unemployment rate is unchanged at 61⁄4%, although spare capacity in the labour market is expected to remain for an extended period. Our central case is for the RBA to sit on its hands until late 2016 when a gradual tightening cycle begins.</span>
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<br><em><span style="line-height: 1.3em;">Alan Oster is group chief economist, National Australia Bank, and </span>can<span style="line-height: 1.3em;"> be contacted <a href="https://business.nab.com.au/author/alan-oster/" target="_blank">here</a>.</span></em>
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Non-residential building approvals remain weak: Alan Oster

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<p><span>GUEST OBSERVER</span></p>
<p><span>Building approvals rose slightly in September, but did not offset last month’s fall. </span></p>
<p><span>We </span><span>continue to believe that the housing market is at or near a peak, and further growth from housing construction is looking increasingly unlikely.</span></p>
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<span style="line-height: 1.3em;">Housing building approvals rose marginally in September, not offsetting the previous </span><span style="line-height: 1.3em;">month’s decline</span><span style="line-height: 1.3em;">, which was revised even further downward. Detached housing approvals fell slightly, meaning that activity has been unchanged for near two years. But the key swing variable, the higher-density segment, posted growth of 6.9% m/m (Figure 1).</span>
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<br><span style="line-height: 1.3em;">This monthly growth in the higher-density segment was mixed across the states. Queensland rebounded sharply to a near-record level, while Victoria posted mild growth. On the other hand, New South Wales approvals fell heavily, and are now 60% lower than the peak of just two months ago, highlighting the volatility inherent in the data. Nonetheless, the national level of approvals continued to trend lower, consistent with our belief that although demand for new housing will remain solid, it will not return to the peak levels of earlier this year. This means that although construction activity will remain elevated, further growth, and further contribution to national output, will be increasingly hard to come by.</span>
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<br><span style="line-height: 1.3em;">Meanwhile, the outlook remains weak in the non-residential segment. Approvals rose slightly in September, but remain low, hindered by ongoing softness in the office segment particularly. Accommodation-related approvals continue to trend higher, and now sit at </span><span style="line-height: 1.3em;">record levels, likely supported by the lower AUD’s positive impact on the tourism sector </span><span style="line-height: 1.3em;">(Figure 2). </span>
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<div class="column"><span style="line-height: 1.3em;">Other data today showed house price growth weakening in Sydney, up just 0.3% in October (in seasonally adjusted terms). In turn, annual price growth eased back to 16%, from a peak of 20% in July. This marked slowdown is in line with falling auction clearance rates (Figure 3), reflecting lower housing market sentiment, especially amongst investors. Melbourne price growth remained more robust, outpacing Sydney for the past four months in seasonally adjusted terms. However, price growth is easing in Melbourne too, and has slowed over each of the past three months.</span></div>
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<br><span style="line-height: 1.3em;">This waning enthusiasm for housing is at least partially driven by tighter regulation aimed </span><span style="line-height: 1.3em;">at removing some of the heat from the housing market. APRA’s macro prudential measures </span><span style="line-height: 1.3em;">(which have resulted in tighter borrowing conditions and higher interest rates) have resulted in </span><span style="line-height: 1.3em;">a sharp slowdown in investor borrowing, as seen in last Friday’s credit data. </span><span style="line-height: 1.3em;">This is expected to result in house price growth easing further over coming months, with Sydney and Melbourne growth rates to converge with other capital cities. </span>
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<p><em>Cherelle Murphy is c<span style="line-height: 1.3em;">o-head of Australian economics, ANZ and </span><span style="line-height: 1.3em;">Daniel Gradwell is economist. They can be contacted <a href="https://bluenotes.anz.com/authors/our-economists/" target="_blank">here</a>.</span></em></p>
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Building approvals improve, house price growth eases: ANZ Research

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<p><span>GUEST OBSERVER</span></p>
<p><span>The value of housing finance commitments stabilised in August following a sharp fall the previous month. Recent strength in investor finance appears to be waning. </span></p>
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<p><span>Housing finance commitments for the construction of new houses weakened sharply, suggesting building approvals may be nearing a peak. Overall though, the level of activity in the housing market is strong and there is a significant backlog of work.</span></p>
<p>The value of housing finance commitments stabilised in August, rising by 0.2 percent m/m in August following a 2.7 percent m/m fall the previous month.</p>
<p>In annual terms, the value of housing finance continues to fall, with commitments down 6.3 percent y/y in August. The number of housing finance commitments fell by 3 percent m/m.</p>
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<p>Owner-occupied finance excluding refinancing rose by 0.2 percent m/m, with a larger 0.6 percent m/m increase for upgraders. Finance for first home buyers fell by 1.2 percent m/m.</p>
<p>Interestingly, investor finance growth moderated for the second consecutive month, rising by 0.1 percent m/m in August compared with 0.5% m/m in July.</p>
<p>In trend terms, housing finance broadly appears to be rolling over (see Figure 1). This is surprising given that other data flow on the housing market has been somewhat stronger. House prices have continued to rise, auction clearance rates remain elevated, and building approvals are around record levels.</p>
<p>Tighter surveyed lending conditions for developers are continuing to weigh on finance for construction of new housing, which fell sharply in August, suggesting building approvals may be close to peaking (see Figure 2).</p>
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<p>That said, there is a record backlog of work which will continue to support growth in construction activity over the coming year. </p>
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<p><em>Jo Masters is senior economist, ANZ and can be contacted <a href="https://www.anz.com/personal/" target="_blank">here</a>.</em></p>
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Value of housing finance commitments stabilised in August: ANZ's Jo Masters

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<p>GUEST OBSERVER</p>
<p>Construction work is trending lower from historic highs, led lower by the mining investment downturn.</p>
<p>With the sector accounting for 14 percent of the economy this is a material headwind.</p>
<p><span>Total construction work fell by 2.6 percent in Q1, broadly as we expected (Westpac f/c -2.2 percent and market median -1.5 percent).</span></p>
<p>Over the past year, construction activity is down by 6.7 percent.</p>
<p>In dollar terms, work fell by $1.3bn in the quarter, of which $1.2bn was due to a drop in private infrastructure activity. </p>
<p>The detail was also broadly as anticipated.</p>
<p>Private infrastructure work fell sharply, albeit not as rapidly as in Q4, as work on major mining projects nears completions.</p>
<p>Public infrastructure advanced for a 3rd consecutive quarter as work on key transport projects gets underway.</p>
<p>The new home building boom continues, although the rate of growth is moderating.</p>
<p>The private commercial building cycle has turned, consistent with the 20% drop in approvals over the past couple of years.</p>
<p><span>Details</span></p>
<p>Total construction                –2.6 percent<br><span>Private construction            –3.7 percent<br></span><span>Public construction             +2.5 percent</span></p>
<p><em>Private - by segment</em></p>
<p>Infrastructure                        –6.8 percent<br><span>Dwelling, new                      +1.5 percent<br></span><span>Dwelling renovations          +0.9 percent<br></span><span>Non-res. building                 –7.6 percent</span></p>
<p><em>Public - by segment</em></p>
<p>Infrastructure                        +2.2 percent<br><span>Building                                 +3.5 percent</span></p>
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<p><span><span>Andrew Hanlan is senior economist for Westpac and can be contacted </span><a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/andrew-hanlan/3/222/430" target="_blank">here</a><span>. </span></span></p>
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Australian Q1 construction work down 2.6 percent: Westpac's Andrew Hanlan

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<p>GUEST OBSERVER</p>
<p>Private building activity is set to soften in 2016 after strengthening in four of the past five years.</p>
<p>Approvals have long since declined, led lower by the office market, with recent activity levels sustained by reducing the work pipeline. We anticipate only a relatively modest moderation in private activity.</p>
<p>By contrast, public works - accounting for 20 percent of total activity - is beginning to recover, after the downturn of recent times. This will provide only a partial offset to weaker private sector activity.</p>
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<p>Activity: Real private building activity turned down in the March quarter, contracting by 6.7 percent to be 4.4 percent lower than a year ago. That follows a 31% expansion in the five years to December 2015, including a 7.8 percent increase in 2015.</p>
<p>Public works began to turn higher in the March quarter, advancing by 2.7 percent, to still be 11.7 percent lower than a year ago.</p>
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<p>Total real building work contracted by almost 5% in the March quarter, to be almost 6% lower than a year, having been broadly flat in both 2014 and 2015.</p>
<p>Total commencements lifted to be above par in the March quarter, valued at $8.9bn, up from a 2015 average of $7.5bn and averages for the previous five calendar years ranging between $8.2bn and $8.4bn. That said, the March result is insufficient to prevent a near-term moderation in activity.</p>
<p>Private commencements moved broadly sideways in Q1, at $6.2bn, relative to $5.9bn on average for 2015, which is down from the three previous calendar years, ranging between $6.3bn and $6.9bn. Public commencements lifted in Q1 to $2.7bn, the strongest quarterly result in four years, and up from a 2015 average of $1.5bn. The result was boosted by health projects proceeding across Tasmania, NSW, South Australia and the ACT.</p>
<p>The pipeline of work outstanding has been significantly reduced since mid-2014, to be at $20bn, down from a peak of $27bn, as work progresses on major health projects and office buildings across the states. For private projects, the work pipeline at $13.9bn currently, down from $20.7bn, is approaching the lows of 2009 to 2011. For public projects, the pipeline has lifted to a still low $6.2bn, up from $4.7bn in mid-2015.</p>
<p>•As to the prospects for a near-term moderation in building activity, it is notable that private commencements are running 13% below the current level of work done, while for the sector as a whole, the figure is about 7 percent below.</p>
<p><a href="/images/2016/07/25/Screen%20Shot%202016-07-25%20at%208.25.44%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/07/25/Screen%20Shot%202016-07-25%20at%208.25.44%20AM.png" alt=""></p>
<p>Commencements and approvals</p>
<p>Commencements were above par in the opening quarter of 2016, coming in at $8.9bn, up from the 2015 average of $7.5bn. Strength was evident in public projects, at $2.7bn, up from a 2015 average of $1.5bn. Notably, a number of health projects commenced in the quarter, across Tasmania, South Australia, the ACT and NSW. Private commencements tracked broadly sideways in March 2016, at $6.2bn relative to a 2015 quarterly average of $5.69bn.</p>
<p>Notwithstanding the positive start to 2016, the broader trend remains that commencements and approvals have taken a step lower since the first half of 2014 - albeit a relatively modest one by historical standards.</p>
<p>As to the more timely building approvals, these have been broadly steady of late, but are down from earlier highs - see charts opposite. In the year to May 2016, total approvals increased by 2% relative to the year prior, leaving them 14 percent below the peak in the year to February 2014. For private sector projects, approvals are 15% below the peak of early 2014, including a 5 percent decline over the past year.</p>
<p>The office market is a key driver - but certainly not the only driver - of building approvals and building activity. Office approvals are characterised by large swings reflecting the long lead times for often large projects. Over the past decade, office approvals have moved through two cycles, with a pre-GFC peak in 2008 of $9bn and a post-GFC peak of almost $8bn in 2013, see chart opposite. Currently, office approvals are at cyclical lows, at $3.7bn, some $4bn, 50 percent, below earlier highs.</p>
<p>Total building approvals are only modestly below the highs of early 2014, in contrast to the sharp retreat in the office market. This divergence reflects a number of key trends, notably: strength and the growing importance of social building projects (which includes health, education, aged cared, accommodation and entertainment); the resilience of the retail sector, as competition for the consumer dollar intensifies; and a lift in public approvals during the past year, albeit from relatively low levels.</p>
<p><strong>State-by-state </strong></p>
<p>Conditions and the outlook are quite varied across the states. As at the national level, the importance of social building projects, a lift in public investment, and resilience in the retail sector together add nuances to the state-by-state picture not apparent from differences in office markets across the capital cities.</p>
<p>Real building work nationally declined by 6% over the past year, down $0.5bn, centred on a softening of activity in: Victoria (from a high base); South Australia; and WA - which more than offset a lift in Qld and Tasmania, while the cycle was cresting in NSW.</p>
<p>In the mining state of WA, building activity in 2016 has further downside, notwithstanding firmer approvals over the past couple of months. By contrast, conditions in Qld are likely to be reasonably resilient with retail and social approvals strengthening of late. In Victoria, where the work pipeline is now relatively low, much of the pull-back in activity has occurred. In NSW, a sizeable work pipeline will support activity near-term, ahead of a likely moderation - one that may be relatively mild if a round of new projects receive the go ahead. In South Australia and Tasmania, a lift in public investment will support activity going forward, particularly in Tasmania. </p>
<p> </p>
<p><span>Andrew Hanlan is senior economist for Westpac and can be contacted </span><a href="https://www.propertyobserver.com.au/https://au.linkedin.com/pub/andrew-hanlan/3/222/430" target="_blank">here</a><span>. </span></p>
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Modest downturn in non-residential building sector:  Andrew Hanlan

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<p>GUEST OBSERVER</p>
<p>ABS figures show that new home building approvals faltered during the first month of 2016.</p>
<p><span style="line-height: 1.3em;">January 2016 was a rather weak month for new home building approvals, with both detached house approvals and those for multi-units falling back compared with December. </span></p>
<p>During January 2016, new home building approvals declined by 7.5 percent. This comprised a 6.1 percent drop in detached house approvals and a reduction of some 9.1 percent in multi-unit approvals. Over the past year, approvals totalled some 231,752 which is 10.6 percent higher than the previous 12 month period and still very strong by historical standards. </p>
<p>Towards the end of 2015, the residential building industry was hit by a number of unfavourable developments. The major banks increased their mortgage interest rates, credit conditions were tightened for domestic investors and the $5,000 foreign investor fee came into force. This has made it more difficult to deliver new housing supply and today’s figures seem to bear this out.</p>
<p>The HIA’s <em>Housing Australia’s Future </em>report warned last week of the major challenges in meeting Australia’s housing needs over the coming decades. It is therefore vital that policy settings and credit conditions become more focused on the consistent delivery of the required volume of new housing supply over the long term. We’re just not seeing this at the moment. </p>
<p>During January 2016, total seasonally adjusted new home building approvals saw the largest increase in South Australia (+14.2 percent), followed by Western Australia (+7.2 percent) and Victoria (+2.9 percent). The volume of approvals fell in New South Wales (-22.9 percent), Queensland (-13.4 percent) and Tasmania (-11.1 percent). In trend terms, approvals saw a 9.4 percent decline in the Northern Territory and contracted by 11.4 percent in the Australian Capital Territory.</p>
<p><a href="/images/2016/03/Screen%20Shot%202016-03-01%20at%2012.34.55%20PM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/03/Screen%20Shot%202016-03-01%20at%2012.34.55%20PM.png" alt="" width="799" height="388"></p>
<p><em>Shane Garrett is senior economist for HIA and can be contacted <a href="https://hia.com.au/en/BusinessInfo/economicInfo/EcoGroup.aspx" target="_blank">here</a>.</em></p>
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Building approvals stumble into 2016: HIA's Shane Garrett

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<div class="column">GUEST OBSERVER</div>
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<div class="column">Dwelling approvals dropped 8.7 percent in Sep, larger than the market expectation of a 3 percent fall but within the range of ‘normal’ volatility for month to month reads.</div>
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<div class="column"><a href="/images/2016/11/03/Screen%20Shot%202016-11-03%20at%208.09.31%20AM.png" target="_blank">Click to enlarge</a></div>
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<div class="column">The detail shows a sharp 16.3 percent drop in units was the main driver in the month – with-in this segment the ‘usual culprit’ when there is volatility - high rise approvals – was down just over 20 percent in the month but down only slightly on a year ago, reflecting the high starting point following a big surge in July. Even with a dip last month, August was the fourth highest reading on record.</div>
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<div class="column"><a href="/images/2016/11/03/Screen%20Shot%202016-11-03%20at%208.13.02%20AM.png" target="_blank">Click to enlarge</a></div>
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<div class="column">Outside of ‘high rise’ the monthly moves were mixed but mostly hint at an underlying trend softening. Private sector house approvals were up 2.3% but ‘mid-rise’ were down over 10 percent. The combined picture from ‘non high rise’ approvals now show a trend decline for six consecutive months tracking at a 10-15 percent annual pace. The state detail shows this coming through across all the main states – a more convincing though still tentative sign of a broad underlying slowdown.</div>
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<br>The signal from ‘high rise’ remains much less conclusive – despite the latest monthly drop it is unclear whether the segment is levelling out or turning down with approvals uneven across the major states as well (up strongly on a year ago for NSW but lacking a clear direction in Vic and Qld).</div>
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<br>The value of renovation approvals declined 2.2 percent to be down 10.6 percent/yr, pointing to a clear softening heading into year end after strong gains in the first half of 2016.</div>
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<br>The value of non res building approvals spiked sharply in Sep (+119 percent!). The gain came from a mix of retail, office, hotels and entertainment &amp; recreation buildings – the breadth of the gain a promising sign that it may not be just a 'one-off'. State-wise, all of the gain is coming from NSW and Vic.</div>
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<br>Overall, the update provides more tentative evidence of an underlying slowdown in non high rise dwelling approvals but the picture on high rise remains very uncertain. The mix still looks relatively constructive for new dwelling construction in 2017 – when the continued ramp up in apartment work looks set to more than offset the slowdown in other segments. The near term path of high rise approvals is more critical for activity in 2018.</div>
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<div class="column">The September pull back in this segments falls well short of a decisive signal – it would take similar-sized moves in the next few months to signal the sort of 'break out' weakening that would indicate a sharp wind down in high rise activity is on the way. </div>
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<div class="column"><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></div>
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High rise approvals drop after July surge: Matthew Hassan

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<p>GUEST OBSERVER</p>
<p>The September 2016 building approvals date, released earlier today by the ABS, shows some of the growing fears around the excess heat in the market for new apartments may be premature.</p>
<p>The data shows a massive turnaround in apartment approvals, from the strong growth recorded in the August data of 26.3 percent (year-on-year), to a reversal in the September data, to record a fall over 9.9 percent measured year-on-year.</p>
<p>Building approvals data has a tendency to be quite volatile when comparing results month by month, but this latest result is an example of how quickly the housing market can respond when market conditions change.</p>
<p>Talk of an emerging oversupply in inner-city apartments markets in Sydney, Melbourne and some parts of Brisbane has no doubt made developers and builders in these markets more cautious.</p>
<p>However, Master Builders would caution against being overly bearish on the prospects of inner-city apartment markets while auction clearance rates remain high, rents are growing and house prices continue to march forward.</p>
<p>On the government’s own estimates Sydney is projected to have a population of 6.4 million by 2036. On average, that would add 210,000 people to Sydney’s population each year, or pretty much the equivalent of the entire population of Hobart each and every year for the next twenty years.</p>
<p>Elsewhere, the RBA’s decision this week to keep interest rates on hold came with more jawboning of risks for the housing sector. While the rhetoric was more positive overall, particularly on the global economic outlook, there is a heightened level of concern around the impact a further reduction may have on house prices.</p>
<p>Master Builders agrees with the RBA’s sentiments.  While acknowledging the role interest rates have played in supporting a much needed boom in housing construction over the past couple of years, Master Builder would caution the Bank to carefully consider the impact that further reductions may have on some of Australia’s hotter housing markets in Sydney and Melbourne.</p>
<p><em>Matthew Pollock is national manager, housing, Master Builders Australia and can be contacted <a href="https://www.masterbuilders.com.au" target="_blank">here</a>.</em></p>
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