Australian dwelling approvals had an unconvincing bounce: Matthew Hassan

EXPERT OBSERVATION

Dwelling approvals rose 3.3% in September, reversing part of the 13% slide over the previous two months but with the monthly move a touch below the consensus expectations of a 3.8% rise.

Despite this, the detail was weak. The monthly gain centred on the famously volatile high rise unit segment, which had fallen sharply over the previous two months. The September high rise bounce was also heavily concentrated in Victoria. Approvals outside of this narrow state segment were significantly weaker (our estimates suggest total dwelling approvals ex Vic high rise were down about 7.5%).

Private detached house approvals declined 2.7% to be down 7.3% since June – a significant shift for what is usually a more stable segment.

Private units in total posted a 9.2% bounce, retracing some of the 20% decline over the previous two months. With-in this, ‘high rise’ approvals jumped 40-50% although this looks to be exaggerated by seasonal adjustment. A sharp fall in 'medium density' partially offset the gain.

By state, the Vic recorded an outsized 30.5% gain but was softer ex high rise (we estimate down 2.3% in seasonally adjusted terms). The other major states recorded big falls, NSW down 6.8%, Qld down 10.5% and WA down 19%.

The total value of renovations edged up 0.8%, the slight trend decline over the first half of the year showing signs of leveling out. Notably, trend approvals in NSW and Vic are down 7.6% since the start of the year.

The total value of non res building approvals declined 3.8%. Trends remain difficult to pick out due to high volatility but the segment looks to be tracking lower in most states.

Overall, the headline gain in dwelling approvals this month is a 'head fake'. Excluding a sharp spike in Vic high rise, something that is very unlikely to sustain, reveals a fairly broad based picture of weakness. Tightening credit conditions are clearly impacting both residential and non residential sectors. The pace of decline remains hard to pin-point but building activity is more clearly tracking towards a contraction in activity heading into 2019.

Matthew Hassan is a Senior Economist for Westpac