Residential building conditions still soft: HIA

Jonathan ChancellorDecember 8, 2020

Building approvals were down 14% in September, according to the latest figures from the Australian Bureau of Statistics.

But HIA acting chief economist Andrew Harvey says approvals rose by 0.7% in the month of September in the core detached housing segment of the market.

“The headline result paints a worse picture than reality although it does have to be noted that the market conditions surrounding residential building are soft at present – total approvals in the year to September 2011 are down by 9.3% when compared to the year to September 2010,” he says.

“Today’s figures confirm that yesterday’s interest rate cut was warranted – it was a necessary first step to an eventual recovery in new home building.

“This is not just because it will save around $50 a month off the average mortgage, but more importantly because it should help boost confidence as homebuyers realise rates are no longer on an upwards trajectory,” Harvey adds.

The HIA notes the fall in building approvals is entirely due to the volatile “other dwellings” segment of the market, which fell a sizeable 32%.

“It’s best to abstract from monthly movements in the volatile ‘other dwellings’ segment, as it can be misleading,” Harvey adds.

“The core detached housing segment of the market saw approvals rise by 0.7% in the month of September although they are down by 1.8% over the September quarter.

“The headline result paints a worse picture than reality, although it does have to be noted that the market conditions surrounding residential building are soft at present – total approvals in the year to September 2011 are down by 9.3% when compared to the year to September 2010.”

“Today’s figures confirm that yesterday’s interest rate cut was warranted – it was a necessary first step to an eventual recovery in new home building. This is not just because it will save around $50 a month off the average mortgage, but more importantly because it should help boost confidence as home buyers realise rates are no longer on an upwards trajectory,” Harvey adds.

In terms of the jurisdictions, seasonally adjusted approvals fell in NSW (down by 32.2%), Victoria (down by 13.6%), Queensland (down by 12.7%), Western Australia (down by 1.5%) and Tasmania (down by 4.8%), while approvals rose in South Australia (up by 11.3%).

In trend terms, approvals fell in the Northern Territory (down by 6.2%) and were basically flat in the ACT (down by 0.1%).

Looking through the monthly volatility in building approvals, dwelling construction continued to experience its own two-speed cycle, according to David Cannington at ANZ Research.

“House building approvals continue to be weighed down by housing affordability constraints, while an increasing undersupply of housing and rental market tightness appears to be supporting a significant pipeline of medium density dwelling construction.

“The outlook for this pipeline will continue to fluctuate with developer margins and changes in government policies to address development constraints.

“However, we continue to expect that total dwelling investment, driven by ongoing weakness in house construction, will weaken further and detract from GDP growth in the year ahead,” Cannington notes.

Westpac notes the extreme volatility makes it difficult to get a fix on underlying conditions.

“The firming evident in private sector house approvals and finance data suggests activity may be finding a base in this segment.
“There should be more support from state government policy changes in Qld ($10,000 incentive for new building) and NSW (reduced stamp duty concessions for first-home buyers purchasing established dwellings but remaining in place for newly built) and  the RBA's decision to cut rates," the bank says.

“However, fragile consumer sentiment, deteriorating labour market conditions and global financial turmoil will clearly put a dampener on things.

“Meanwhile how much residual weakness is yet to come through the private sector units segment - where there do appear to be more large-scale projects coming through but also an underlying, lagged weakness to the slowdown – is very unclear,” Westpac notes.

Jonathan Chancellor

Jonathan Chancellor is one of Australia's most respected property journalists, having been at the top of the game since the early 1980s. Jonathan co-founded the property industry website Property Observer and has written for national and international publications.

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