Aussie Residential Construction Set to Ease

Friday, October 2nd, 2015
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The residential construction boom may have passed its peak despite the number of homes approved to be built still near record levels.

Approvals for the construction of new homes fell 6.9 per cent in August, after a 7.9 per cent rise in July, and another 6.9 per cent fall in June, official figures show.  So far this year, every monthly gain in building approvals has been followed by a fall in the following month, and vice versa.

Over the 12 months to August, building approvals were up 5.1 per cent, the Australian Bureau of Statistics said.  JP Morgan economist Tom Kennedy said the volatile high rise apartments category is driving the up and down nature of the data.

“Looking through the volatility, it is apparent that activity in the higher density space remains solid, with approval volumes reaching new all time highs last month,” he said.

“It’s had a very strong run-up and these things can’t go on forever, so I would expect it to start dissipating,” he said.

Mr Kennedy said he is not worried about a sustained fall in building approvals because they are at such elevated levels they can afford to drop.

“I still think residential construction is going to remain pretty solid for some time, but it’s going to cool a little bit,” he said.

Approvals for private sector houses rose 4.9 per cent in the month, and the ‘other dwellings’ category, which includes apartment blocks and townhouses, was down 11.4 per cent.  St George senior economist Janu Chan said although home construction approvals may have peaked, low interest rates will keep the housing market strong.

“This will continue to support further house price growth and prop up residential construction over the medium-term,” she said.

Commonwealth Bank economist Diana Mousina said other housing figures showed that investors who have been driving the housing boom are becoming less of an influence.

Reserve Bank credit data showed that the number of housing loans to investors grew at its slowest pace in two years in July and August, most likely driven by new regulations by the housing regulator to rein in risky lending practices.

“The regulators would be pleased,” Ms Mousina said.

“Higher investor interest rates and tougher serviceability tests are expected to continue to slow investor growth.”

Housing Industry Association senior economist Shane Garrett said further growth in residential construction is getting more difficult but it is needed to support the economy.

“The residential construction sector as a whole is facing strong headwinds in the form of tight land supply conditions in key markets, planning delays, and the unfavourable effects of recent credit restrictions,” he said.

By Jason Cadden
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