Queensland leads national fall in building approvals, despite boost

Attempts by the Queensland government to stimulate the building of new housing with its $10,000 building bonus have failed dismally, with the state leading a nationwide fall in building approvals in October, according to ABS statistics.

The sunshine state recorded a 19.5% drop in building approvals for the month, leading a 10.7% nationwide slump.

The figures are revealing since potential new home buyers had a full two months to digest the $10,000 incentive. The scheme was introduced on August 1 and will run until January 31, 2012. The boost is available to all class of buyers  (including investors) buying or building a new house, townhouse or unit under $600,000,

At an investor conference last week, Stockland CEO Matthew Quinn highlighted the poor take up of the grant with just 1,200 applications lodged to date equating to $12 million – the Queensland government has set aside $140 million for the scheme.

There were also big falls in approvals in Victoria (18%), Tasmania (12.9%) a modest decline in South Australia (3.3%) and flat growth NSW (0.4%) and the ACT (0%).

The only state to register an increase was Western Australia, where approvals were up 2.1%.

For the last 12 months building approvals – a leading indicator of future residential construction activity – are down 29.8% for the year

The outlook for units is particurlarly bleak, with approvals declining 16.8% in October following a fall of 31.6% in September to be down a massive 44.6% for the year.

Private house approvals declined 7.5% in October following a modest rise of 0.7% in September to be down 15.4% for the year.

Westpac senior economist Matthew Hassan warned of a “hard landing” for new construction and described the October data as “disconcertingly weak” particurlarly given consensus expectations of a rise of 3.3%.

“It suggests private sector houses are taking a sharp leg lower despite recent firming in finance figures and that the residual weakness in apartments apparent once a couple of large projects are removed from the August numbers is indeed pointing to an accelerated weakening,” Hassan says.

“The RBA's decision to cut rates in November may stem the flow but dwelling construction, which makes up 5.7% of GDP, now looks likely to be a considerably larger drag on growth in 2012,” he says.

Industry body the Master Builders Australia says the October figures indicate that the negative trend that developed one year ago is worsening.

“Confidence in the residential sector has plummeted, and although this figure predates the November rate cut, the Reserve Bank will need to do more to turn the situation around,” says MBA chief economist Peter Jones.

“Activity in both private sector houses and other dwellings (units and apartments) is sliding alarmingly after a bleak run of results through the course of 2011,” he says.

“The latest building approval figures are in line with the findings of recent Master Builders’ national surveys that reveal the extent of the deterioration in residential building conditions.”

“Sales and forward orders have fallen away dramatically in the past year as cautious clients, overseas events and difficulties accessing finance work against the industry,” Jones says.

“The immediate challenge is to restore confidence and drive a private sector recovery in the building sector.”

Jones says the residential building industry is banking on further rate cuts to “help boost confidence and stabilise an uncertain market”.

HIA chief economist Harley Dale says the October figures highlight the urgency of acting in late 2011 on both the monetary and fiscal policy front. 

“Such action would both shore up confidence and reduce the risk of housing activity plumbing the depths last seen during the GFC,” he says.