Volatility in high-rise dwelling approvals continues: Westpac's Matthew Hassan

Guest Observer

Dwelling approvals were a touch firmer than expected in March, rising 2.6% in the month vs consensus forecast of a 1% gain. Approvals are up 14.5%yr although the gain is exaggerated by monthly volatility affecting the base period. For Q1 as a whole, approvals are up 2.1%qtr and 8.5%yr.

Volatility more generally remains a significant issue, making it difficult to get a precise fix on momentum. Our preferred approach is to focus on 3mth averages as shown in the table right and as solid lines in most of the accompanying charts. However even this has shown significant volatility since late last year especially in the lumpy 'high rise' segment that has dominated the current cycle (monthly moves in this segment have averaged ±40% since Nov).

For the March month, the headline gain was led by a strong rebound in +6.1%mth and a reasonably solid 1.1%mth gain for private detached houses. For Q1 as a whole, units were up 1.8%qtr and houses up 2.4%qtr. Within the 'units' segment 'high rise' rebounded over 20% in the March month but were still down 6.9%qtr. 'Low rise' approvals rose 4.9%qtr.

On a combined basis, 'non-high rise' approvals were down 0.9%mth but up 3%qtr. This is a little firmer than expected with construction-related finance approvals pointing to more of a softening. For Q1 as a whole, Non high rise approvals are up 4.8%yr.

The state detail shows strength is heavily concentrated in Vic with total approvals in the state up +7.3% in the March month. Although a sharp high rise spike in Nov means Vic approvals are down 6.7% for Q1 as a whole they are up an impressive 20% on Q1 last year.

NSW recorded a sharp pull-back in the month (–12%). Qld approvals dipped 0.8% although within this a sharp pull back in units was offset by a strong rise in houses (+6.5%mth). On a quarterly basis, NSW is showing a clear trend decline with total approvals down 2.7%yr whereas Qld approvals are up solidly by 15.2%yr.

Overall, the state detail looks to be broadly consistent with an expected pull-back in high rise approvals concentrated in NSW and Qld with Vic expected to hold up better.
The value of renovation approvals fell 6.3% in the month, down 4.5%qtr for Q1 as a whole with a slight downtrend now in place.

The value of non-res building approvals declined 4.6%mth but followed a 22% rebound in Feb from a similar sized declined in Jan. The dominant driver continues to be a sharp fall back in the previously very strong office segment.

Overall, despite the stronger than expected read on dwelling approvals this month the state mix on high rise activity remains consistent with lead indicators pointing to another leg lower led by NSW and Qld. Meanwhile construction-related finance approvals continue to point to a further softening to come for non-high rise segments.

Matthew Hassan is senior economist with Westpac.