Growth in store for building approvals

By Gerv Tacadena | 02 Sep 2020

The number of dwellings getting the go-signal for construction went up in July, reflecting the improving consumer sentiment, according to new data from the Australian Bureau of Statistics.

Building approvals rose by 12% in the month on a seasonally adjusted basis, according to the ABS. Apartment approvals led the gains, swinging from an eight-year low in June to a 22.7% increase in July.

Detached homes also posted growth in approvals at 8.5%. This was the segment's most robust monthly increase since January 2014.

"The July results likely reflect improved consumer sentiment in May, on the back of falling COVID-19 cases and easing of restrictions," said Daniel Rossi, director of construction statistics at the ABS.

Tasmania reported the strongest approval growth at 50%, followed by New South Wales (32%), Victoria (9.3%), and Queensland (7.7%). South Australia and Western Australia, on the other hand, registered declines of 10.5% and 8.3%, respectively.

Quarterly trends, however, reveal that approvals remain subdued, particularly for the multi-unit segment. In fact, approvals for apartments over the three months to July remain 35% lower than last year. Growth in this three-month period was the weakest since early 2012, said Tim Reardon, chief economist at the Housing Industry Association.

"Activity in this part of the market is likely to remain subdued until there is greater certainty about how the pathway for overseas migration is to be restored," he said.

The opposite, however, is predicted for the detached housing segment. Reardon said the announcement of government grants, including the Homebuilder Scheme, have yet to reflect in the approval figures.

"The detached market will benefit from HomeBuilder and several other state initiatives which will underpin work on the ground in the December quarter. New Home Sales data suggests that detached house approvals will increase toward the end of the year," he said.

This means that the conditions in the unit and housing segments are likely to continue to diverge over the next few months.

"The multi-unit market has been slowing since the start of 2018, and the cessation of migration will compound this slowdown," Reardon said.

However, it is also crucial to note that the July approval figures precede the second Melbourne lockdown, which could act as a major drag in demand in the coming months, said Maree Kilroy, economist for BIS Oxford Economics.

"The restrictions are expected to hinder Victoria's response to the stimulus measures currently in play, including record-low interest rates and the HomeBuilder program," she said. "While the uptake of housing stimulus measures in other states have been promising, many headwinds persist, including a difficult labour market and very weak population growth."

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