Building approval figures give mixed signals amid apartment rebound
The latest housing approval figures provide a mixed picture of the sector, with a flood of new apartment permits balanced against a slide in permits for stand-alone houses.
- Building approval data is notoriously volatile, but in trend terms the number of permits issued are down about 22 per cent on a year ago
- Approvals in February rose in NSW and WA, while falling or remaining flat in other states and territories
- Falling house prices and declining lot sales point to ongoing weakness this year
In the volatile, seasonally adjusted analysis from the Australian Bureau of Statistics, overall building approvals jumped 19.1 per cent in February— with a massive 65 per cent surge in apartment approvals outweighing an almost 4 per cent slide for house permits.
The less volatile trend series reported a fairly flat result for total dwellings, up 0.4 per cent for the month, with apartment permits up 2.6 per cent and houses down 0.8 per cent.
Over the year in trend terms, the overall number of permits issued is down about 22 per cent, with apartment approvals down by almost a third and the number of house permits issued sliding 12 per cent.
BIS Oxford Economics analyst Maree Kilroy said the jump in approvals was surprising, but likely to be a statistical anomaly.
“Apartment approvals in New South Wales and Victoria drove the positive figure but this is an expected blip given the lumpy nature of the high-density sector,” Ms Kilroy said.
Ms Kilroy said considering the negative leads for house prices and lot sales, approvals and home building were likely to weaken over the year.
“The latest data saw house approvals fall below their historical average of the past 35 years and they are expected to soften further throughout 2019,” she said.
Approvals increase ‘a flash in the pan’
Citi’s Josh Williamson described the February data as “a flash in the pan” and said he expected a payback in the coming months.
Mr Williamson said the monthly gain was the largest since 2012 and was entirely driven by apartment approvals — largely in New South Wales.
“The February data does not mark the start of a new wave of investment,” he said.
“We expect the downward trend in approvals to resume, which could see dwelling starts decline from around 225,000 last year to 185,000 this year, or potentially lower,” he said.
Apartment supply risks
The Reserve Bank is likely to keep a close eye on the data given its recent concerns about financial stability risks around apartment development.
“The concern is the increase in supply exacerbates the housing cycle downturn and adversely impacts households’ and developers’ financial positions,” CBA’s Belinda Allen said.
“Households could have to find additional funds to settle on apartments whose values have declined as banks reduce valuations and are willing to lend less.”
“Also, developers could be faced with increasing settlement failures and their own cash flow issues.”
The RBA has previously noted risks in the apartment sector “appear to be elevated but contained”.
Across the states and territories, total dwelling approvals rose in New South Wales (3.1 per cent) and Western Australia (2.0 per cent), in trend terms.
Falls were recorded in the Northern Territory (6.5 per cent), the Australian Capital Territory (6.3 per cent), Queensland (2.0 per cent), South Australia (1.1 per cent) and Victoria (0.8 per cent). Tasmania was flat.