Builders again embrace houses: Craig James
GUEST OBSERVER
Approvals by local councils to build new homes rose by 10.9 per cent in June after falling by 5.4 per cent in May. House approvals rose 4 per cent to 13-month highs.
What does it all mean?
Apartment approvals bounced higher in June, but the long-term trend shows that home builders are now increasingly looking to build free-standing homes or townhouses. The share of new building allocated to townhouses has hit a 7-year high of 14.7 per cent while detached houses now account for 51.1 per cent of building – a 15-month high. Whether local councils are saying no to high rise apartments or whether it is the end- buyer saying no, builders, developers and building material providers will need to carefully watch future trends.
More homes are still being approved for construction by local councils. Some thought that the housing pipeline would be well and truly drying up by now, but that’s certainly not the case. The number of council approvals is actually little-changed on a year ago.
What do the figures show?
Building Approvals:
Dwelling approvals rose by 10.9 per cent in June after falling by 5.4 per cent in May. In trend terms, approvals rose by 0.1 per cent in June – the first rise in four months.
Over the past year 219,284 new homes were approved, down from the record high 242,629 in the year to August 2016.
House approvals rose by 4.0 per cent in June – the third straight gain and the highest number in 13 months. Meanwhile ‘lumpy’ apartment approvals rose by 20.1 per cent in June after falling by 12.4 per cent in May. Apartment approvals have moved in a dramatic zig-zag fashion for the past five months.
Across states/territories: NSW (+24.8 per cent); Victoria (+6.1 per cent); Queensland (+0.1 per cent); South Australia (-20 per cent); Western Australia (+19.6 per cent); Tasmania (-8.3 per cent). Trend terms: Northern Territory (-2.7 per cent); ACT (+5.9 per cent).
Western Australian approvals hit 7-month highs in June. NSW approvals rose the most in 11 months.
Dwelling approvals in May were down by 2.3 per cent on a year ago in seasonally adjusted terms and were down by 14.9 per cent in trend terms.
The value of all commercial and residential building approvals rose by 2.2 per cent in June – the third straight gain. Residential approvals rose by 5.5 per cent with new building up by 5.4 per cent while alterations & additions rose by 6.7 per cent to a 6-month high. Commercial building fell by 2.6 per cent in June after rising 13.5 per cent in the two previous months.
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?
Home building remains healthy – and it’s not just new homes but also renovations, tracking near record highs. At present building isn’t soaring nor slumping, but the Reserve Bank will certainly need to keep housing well and truly in the centre of its radar screen over the coming year.
Craig James is the chief economist at CommSec.