Now here’s something no one saw coming – and it means the residential construction market will be much stronger than expected going into 2017.
According to the Bureau of Statistics figures yesterday building approvals jumped 11.3% last month (seasonally adjusted), the strongest increase in two and a half years, as apartments and other non-home dwellings surged.
The ABS figures easily topped the 1.1% rise the market had been looking for and followed two months of falls – 4.7% in June and 3.5% in May.
Year-on-year, approvals were up 3.1%, in contrast to the market forecast for a fall of 8.3%. They slipped 5.7% over the year to June, so the rebound is telling and should end the alarmist talk from some economists and in the property market that the apartment boom was coming to an end.
Of course, not all approvals become buildings, so it remains to be seen what the housing finance data will tell us for July and coming months.
And the fact that the surge was concentrated in apartments (private housing approvals fell 0.5%, seasonally adjusted, to be down 2.9% in the 12 months to the end of the same month).
The approvals though are a highly volatile series and often rise sharply in one month and fall sharply in another – it all depends on the frequency of local government approvals.
For example, non-private dwelling approvals leapt 23% in July, after falls of 2.4% in June and more than 11% in May.
But they will worry regulators such as the Reserve Bank and APRA who are already concerned about high levels of apartment building in Sydney, Melbourne and Brisbane where gluts are feared.
Westpac economist Matthew Hassan said the strong approvals "put paid" to fears of a "sharp high-rise [apartment] driven fall".
"Overall, the jump clearly casts doubt on the extent of slowing in dwelling construction," he said. "The very large pipeline of projects, dominated by multi unit projects, should see new dwelling construction ramp higher in coming months and remain elevated into 2017."
By state, the jump in approvals was concentrated in NSW (nearly 30%) but there were also solid gains in Queensland and, also WA where there was a shock 8% rise in private housing approvals.
UBS economists said home building will likely continue to contribute to economic growth for the foreseeable future. “Dwellings completions (housing supply) will increase significantly further from now, and will not actually peak until 2018,” the economists said in a note to the market yesterday.
"Dwelling investment seems likely to continue to rise in 2017, which provides a key support to our recently upgraded GDP forecast for above consensus growth of three per cent year-on-year in 2017."
