Fears of early peak in dwelling approvals

Dwelling approvals fell by 3.5% in March, according to the ABS but approvals are still up 20% over the year.

CommBank economist Savanth Sebastian noted the current number of annual dwelling approvals (15,958) is well above the decade average (13,489).

House approvals are up 19.1% over the past year while apartment approvals are up 21.3%.

The latest ABS data showed mixed results across the states, with the total number of building approvals jumping 32% in Tasmania, followed by 8% in New South Wales.

But approvals fell across the remaining states, dropping 12.5% in Victoria.

Building approvals remain well below the 2003 peak. Michael Workman, senior economist at CBA, noted there is a difference in this cycle as multi‑units have about a 45% share of the total, well up on the 30% of a decade ago.

Workman also says the lag between approvals and construction is longer than previously experienced.

"We expect to see sharp rises in the construction activity data in coming quarters.

"It should also flow into higher spending at big box retailers as the new dwellings are kitted out," he said. 

The ANZ estimated the elevated level of dwelling approvals was likely to add around 0.35-0.40ppts to economic growth in 2014-15.

But they added that despite expectations that non-residential and residential building will go some way to offsetting weaker mining investment in the coming years, the data highlighted the volatile nature of the current cyclical recovery in building activity, particularly for the high-density housing and commercial building sectors.

Consequently there are concerns that the downward trend in approvals for high density living – down four of the last five months - may signal approvals have hit an earlier than expected peak. 

HIA-RP Data’s Residential Land Report has meanwhile warned Australia’s residential land market activity continued to tighten at the end of last year.

The data providers Residential Land Report has shown residential land sales fell 1.8% to 15,447 lots in the December quarter, representing the second straight quarter of declining activity.