New housing approvals past peak with further weakness likely: ANZ

EXPERT OBSERVATION

The May building approvals data support ANZ's view that the peak in new housing approvals has past.

Weak housing finance results and the ongoing tightening of credit availability are likely to see approvals continue to ease.

From an investment point of view, the backlog of work will keep activity elevated over the near term, but construction is expected to fall through the end of this year and 2019.

Australian residential building approvals were slightly weaker than market expectations in May, falling 3%, after a 5% decline in the previous month.

Queensland was the main driver of this weakness.

Apartment approvals in the state fell 35%, to the lowest level in four years.

The historically stable segment of detached houses saw a 20% fall in approvals.

While these falls follow quite strong results in the last two months, the 2,700 dwellings approved in Queensland in May is the weakest monthly result since June 2013.

Detached house approvals also recorded a significant decline in Victoria, down 10%.

However, strength in the unit/apartment segment (+15% m/m) meant that Victorian approvals were overall unchanged.

These results are consistent with ANZ's view that Australia is past the peak in housing approvals.

Looking forward, the decline in housing finance for the construction and purchase of new dwellings suggests that building approvals will continue to trend lower.

The tighter credit environment appears to be impacting the construction side, as well as prices, but a large backlog of work will support investment in the near term.

Daniel Gradwell is the senior economist for ANZ.