The number of building approvals dropped by a shockingly large 9.7 per cent in July, bucking economist predictions of a flat result to further suggest construction will remain a drag on economic growth for some time.
Market consensus had been for the number approvals to remain flat and for credit growth to inch up by 0.2 per cent.
Instead, approvals for private sector houses fell 3.3 per cent on a seasonally adjusted basis, and the “other dwellings” category that includes apartment blocks and townhouses fell by a dramatic 18.4 per cent.
With approvals falling for the fourth time in five months, the value of total building approved fell 7.3 per cent in July.
Economists noted that, while conditions are in place to potentially lift property prices and eventually spur approvals, they are coming off a high level and that stabilisation rather than improvement is the medium-term hope.
“The 50 basis points of easing delivered by the RBA already this year, tweaks to lending requirements by APRA and the positive pricing and sentiment shift following the Federal election all argue for a stabilisation in coming months,” JP Morgan’s Tom Kennedy said.
“However, as we have previously noted the residential construction pipeline remains elevated and an obvious headwind to a sustained rebound in approval growth.”
Over the 12 months to July, total building approvals for dwellings fell by 28.5 per cent, the Australian Bureau of Statistics said on Friday.
Apartment approvals, which are more volatile than houses, were 39.3 per cent down over the same period.
AMP Capital senior economist Diana Mousina suggested residential construction will still be a drag on GDP growth for about 0.3 percentage points over the next six to nine months.
“The downtrend in housing construction has taken building approvals back to 2012 levels,” Ms Mousina said.
“Leading indicators of construction activity suggest that weakness in housing construction will continue before a bottoming in early 2020.”
Economists had already moderated their economic growth forecasts ahead of next week’s June quarter GDP data after business investment and construction numbers both missed consensus forecasts this week.
Building work plummeted by a worse-than-expected $1.3 billion in the June quarter, while business investment dropped by 0.5 per cent to $29.2 billion.
The Australian dollar, which had already given up 1.0 per cent against the US dollar since Tuesday, slipped from 67.20 US cents from just before the data’s release to 67.05 moments later.
At 1430 AEST, it was worth 67.15.