February building approvals down 7.8% as residential construction outlook weakens: ABS

The outlook for the residential construction sector has turned even bleaker, with new ABS figures showing a 7.8% drop to 10,771 dwelling approvals in February.

For the year to February, building approvals are down 15.2%, with the figures showing the lowest number of residential approvals since May 2009.

A Reuters poll had been forecasting a 0.3% increase in building approvals over March, while other forecasts had gone as high as a 2% increase.

Commenting on the approval figures, Westpac says that for the RBA, “the weakness apparent in housing approvals since mid-2011 has so far drawn relatively little comment”.

“The soft Feb data and weakness in other aspects of the housing market and the domestic picture more generally may be seeing some reassessment though, of both momentum and the impetus coming from recent policy easing,” the bank says.

“The January to February data tends to be more heavily affected by seasonal adjustment problems due to the market low season.

“The state detail suggests there may be some problems here with NSW slumping 40% in Feb after a 36% surge in Jan– conversely Queensland surged 13% for the month after falling 20% in January," Westpac says.

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Source: HIA

HIA chief economist, Dr Harley Dale says it has warned for some time of the risk that new homebuilding activity will again plumb the depths experienced around the GFC.

"Building approvals are signalling that this outcome is unfolding in 2012," he says.

“Today’s building approvals outcome is, quite frankly, woeful, even allowing for New South Wales virtually driving the entire fall.

"It is difficult to be positive about the short term prospects for new housing when a 7.8% decline in building approvals in February 2012 takes them to their lowest level since March 2009.

"Furthermore, the level of approvals over the three months to February implies annual housing starts hitting a level lower than the GFC trough of 2008/09,” he says.

Peter Jones, chief economist at Master Builders Australia, says further RBA action is needed because  last year’s interest rate cuts "have failed to lift residential building".

"The current level of dwelling approvals is running at 130,000 (annualised), way below what’s needed to even provide for population growth let alone to begin to eat into the housing shortage estimated by the government’s own Housing Supply Council at more than 200,000 dwellings.

“Master Builders’ latest national survey for the March quarter reveals builder sentiment has turned even gloomier, with disappointing sales and weak display centre traffic and enquiries across residential and non-residential building," Jones says.

Former Gillard government economic adviser Stephen Koukoulas tweeted that the RBA needed to “wake up” following the “massively negative” building approvals figures on top of negative manufacturing data and neutral inflation.

“Let’s see what RBA does! They cut unexpectedly twice last year & while they need a hurry up, let’s wait a second,” tweeted Koukoulas.

CommSec economist Savanth Sebastian told AAP the February result was lower than expected, but followed a known trend.

"It's a very volatile reading, but if you look at the numbers, it shows that the housing sector is not showing any sign of strong gains," he says.

Savanth says problems in the residential construction sector are being compounded by potential homebuyers “focusing on existing housing” and not adding to the “new housing segment of the market, which is keeping developers hesitant in committing to new projects".

In the long run he says strengths in other areas of housing will provide support including low rental vacancies, with “rental yields driving property price growth over the next couple of years”.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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