Building approvals jump in November due to pick-up in units: ABS

Dwelling approvals rebounded in November 2011, rising 8.4% to 11,424 dwellings mainly as a result of a big jump in apartment and unit approvals.

The November rise reverses falls of 14.8% and 10% in September and October, according to the latest ABS data.

The seasonally adjusted estimate for private-sector units increased 17.2% in November 2011 following a fall of 10% in the previous month, and estimates for houses rose 4.8% following a fall of 9.6% in the previous month.

Building approval figure have see-sawed up and down throughout 2011, but the overall trend has been a significant decline, with total dwelling units down 18.9% for the year to November 2011. Units were down 27.8% and houses down 9.6%.

Building approvals have fallen in eight of the past 12 months on a seasonally adjusted basis up until November 2011.

HSBC chief economist Paul Bloxham says the “broad story” in the figures is that housing construction is still declining.

He described the November improvement as a bit of a tick back after the steep declines of September and October.

Victoria recorded a 39.9% seasonally adjusted jump in total building approvals in November, but this followed two months of steep declines in September (-13%) and October (-18.4%).

In absolute terms, approvals of houses in Victoria increased to 1,707 in November compared with just 930 in October, while unit approvals rose to 4,484 from 3,366 in October.

Putting the November result into perspective, there were 5,664 unit approvals in March 2011, but since then monthly approvals have all been below 5,000 units.

In Queensland, where the $10,000 building boost has now been extended to April after gathering some momentum, building approvals improved by 6.6%.

NSW registered a 2% increase in building approvals, and there was a 16.9% drop in Western Australia.

Also released were construction figures, which revealed that seasonally adjusted residential building work done fell by 1.6% to an annualised level of $45.5 billion in the September 2011 quarter. 

HIA chief economist Harley Dale says: “Leading housing indicators looked very weak in late 2011, but ahead of this period actual residential construction activity had already been trending down for 12 months”. 

“A three-pronged attack is required to resurrect activity in residential building, an industry which has a large multiplier impact in terms of output and employment across the wider domestic economy,” he says. 

“There is an urgent need for further cuts in borrowing costs for both businesses and mortgage holders, short-term government stimulus, and renewed action on the longer-term housing policy reform front.” 

However, CBA chief economist Michael Blythe is forecasting dwelling construction to lift from 148,000 units in 2011 to 155,000 in 2012. 

“Part of the thinking behind this forecast is the idea that there is a ‘natural’ level of construction activity around which actual dwelling starts cycle,” he says.

“Over the past 15 years that natural level has sat in a 150,000-to-160,000 per annum range. The level reflects factors such as land release, manufacturing capacity, construction company appetite and competition for labour and resources from other construction activities. 

“Various factors drive the cycle around the natural level. But much of the divergence is associated with changes in government housing policy and exogenous ‘shocks’ such as the GFC. 

“For the past five years the demographically driven demand for new housing has run well ahead of new supply. As a result, there is an excess demand for dwellings and a pent-up or accumulated demand as well. Low residential vacancy rates and above-average growth in dwelling rents are the visible signs of this imbalance. This demand-supply mix suggests that there is limited downside to residential construction in 2012,” he says.

Other factors such as improved housing affordability Blythe says are “trending in the direction of upside risks to our 2102 call”.

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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