Dwelling approvals spike is a rogue one: Westpac's Matthew Hassan

EXPERT OBSERVATION

Dwelling approvals jumped 19.1% in Feb driven by a big spike in high rise approvals.

The spike is almost certainly a one-off making the headline result a misleading 'rogue'. Indeed, approvals ex high rise look to have been significantly weaker than expected. The consensus forecast going into the release was for total approvals to decline 1.8%. Approvals ex high rise instead look to have fallen 3.4%.

The detail showed a 3.6% fall in detached house approvals in the month, the 3 month rolling average down 4% on Nov and 10.9%yr, the significant deterioration since mid 2018 clearly carrying into early 2019. Around units, our estimates suggest 'high rise' approvals jumped 135% in the month, led by spectacular rises in NSW (+130% month) and Vic (+213%) the latter coming from an extreme low in Jan.

The fact that both states recorded big gains indicates the spike is not due to just a single project. However, the gain comes very much against the run of play for housing and this specific segment and runs counter to the evidence we have around site purchases. As such it is almost certainly a 'rogye' result. Medium density units were down about 2.4% in the month.

The high rise spike dominated the state breakdown, with big gains in NSW and Vic. Ex high rise, approvals look to have been particularly weak in NSW with apparent declines in Vic and WA as well but a solid gain in Qld. All major states are seeing significant declines in non high rise approvals – on a rolling 3mth basis, NSW is down 14.5%yr, Vic is down 12.6%yr, Qld is down 22%yr and WA is down 13.2%yr.

The total value of renovation approvals rose 4.4%mth to be up 3.6% on a rolling 3mth average basis, with a decent uptrend in place. The state detail shows solid gains coming through in Qld and WA but a less convincing uptrend in NSW and Vic.

The total value of non res building approvals rose 2.1%mth but is still down 8%yr on a rolling 3mth basis. Abstracting from monthly volatility, which is never that easy for this segment, the last few months has shown some lift in offices and steady reads for retail, warehouses and industrial approvals but softer reads for hotels, education, health and other social sectors.

Overall the monthly rise in total dwelling approvals should clearly be ignored – Australia's high rise building boom is not about to reignite any time soon, with the key takeaway instead the more disappointing momentum evident in non high rise approvals.

Other housing market indicators have hinted at some stabilisation in conditions in recent weeks, although the evidence remains only tentative. The flow through to new construction could be much slower given funding difficulties and the substantial increases in new supply coming through.

MATTHEW HASSAN is a Senior Economist for Westpac