Australia: Dwelling approvals slump – Westpac

Matthew Hassan, Senior Economist at Westpac, notes that Australian dwelling approvals fell heavily in March with a 13.4% drop taking monthly approvals back near their Oct 2016 low.

Key Quotes

“Although most forecasters were looking for a pull back from the 10% rise in Dec-Feb, the consensus view was for a milder –4% fall in the month with the weakest forecast –8%.”

“As is often the case with big moves, the drop was concentrated in the more volatile ‘units’ category, down 22.5%mth. The detail shows a veritable collapse in ‘high rise’ approvals, down about 50%mth to the lowest monthly reading since July 2013.”

“The month also showed a sizeable pull-back in private sector house approvals (–4.3%) although medium density ‘low-mid rise’ approvals surged strongly, up about 30%mth. This last segment accounts for 18% of all dwelling approvals. It is showing particularly strong gains in NSW where the state government is looking to streamline the approval process for this form of housing.”

“The wider state breakdown does caution a little against over-reading the latest monthly move. As noted previously, there have been particularly big swings in NSW and Qld approvals in recent months – falling more heavily late last year then driving the surprisingly strong rebound in Dec-Feb. Some of this pattern may reflect state specific factors.”

“The value of renovation approvals rose 2.3% to be up 10.2%yr. Approvals remain on a solid uptrend led by strong gains in NSW and Vic with activity flat/weakening elsewhere.”

“The value of non res building approvals has been more uneven, declining 4.5% in March from a 36% spike in Feb. Public sector work is showing some lift but total approvals are still chopping around a modest downtrend.”

“We are always wary of sharp monthly moves in dwelling approvals. The series is notoriously volatile and prone to revision. There are some additional uncertainties around some of the recent state data as well. However, overall this is still a very weak update. The pull back in high rise approvals has returned and is looking more aggressive. A surge in low-mid rise approvals has provided some offset but its unclear whether this will sustain. Meanwhile the renewed weakness in private sector house approvals is a cause for concern – given the shorter time lines on this type of construction it suggests the dwelling investment cycle is turning a little quicker than previously anticipated. Indeed, our projections of the dwelling construction pipeline based on approvals in individual segments and allowing for different average project times, now suggests new dwelling investment will move into outright contraction in the second half of 2017 rather than 2018.”