Economists remain modestly optimistic about the short-term outlook for housing construction in Australia despite a significant monthly fall in building approvals.

On a seasonally adjusted basis, the number of dwelling units approved for construction dropped 4.7 per cent in August to come in at 13,687.

While the statistically volatile multi-residential sector led the decline, dropping 6.5 per cent, approvals for the more stable detached housing sector also contracted by 1.6 per cent – albeit with the latest numbers following a sharp rise in new home sales during the month.

Compared with the same period last year, however, approval numbers are up 7.7 per cent, with the recently resurgent detached housing sector up 10.3 per cent and multi-residential up a more modest 3.2 per cent.

Moreover, building industry economists remain modestly optimistic about the sector’s near-term prospects.

“The monthly volatility masks a positive but weakening trend, highlighting the frustratingly weak housing recovery,” Master Builders Australia chief economist Peter Jones said. “But despite the slow response of home-buyers to low rates, we are hopeful the stimulatory effect on residential building and the confidence of home-buyers will strengthen in coming months.”

dwelling unit approvals

Housing Industry Association chief economist Harley Dale says there has been a trend increase in approvals underpinned by a combination of low interest rates, redirected policies regarding first home owner buying policies and some renewed growth in existing property prices in Sydney and Perth.

He warns, however, that the geographical base of that recovery remains narrow and that ‘incessant ranting’ about a ‘fictitious house price bubble’ risks derailing the influence of the aforementioned effect of upward pricing momentum.

“Building approvals are continuing to trend higher in New South Wales and Western Australia, but supply side constraints look like capping the recovery in these markets in 2014. Net these two markets out and approvals are as flat as a tack,” he says.

Both Jones and Dale renewed calls for further policy action to boost housing supply by addressing supply side impediments to new construction.

In terms of states, New South Wales was the best performer, recording a seasonally adjusted increase of 10.6 per cent followed by Australian Capital Territory (up 2.3 per cent) and the Northern Territory (up 1.3 per cent).

Approvals fell, however, by 8.7 per cent in Western Australia, 6.6 per cent in Tasmania, 6.2 per cent in Victoria, 0.4 per cent in South Australia and 0.2 per cent in Queensland.

  • The increase in NSW makes sense – the housing market there is already far too constrained.

  • An extraordinary nexus of extremely low interest rates and depressed housing and construction starts. The cost of aquiring land and the risks associated wit h construction see new buyers preferring existing properties. As it often takes many months to prepare for constructing a building, approvals, design and consultants. The cost of council head charges, stamp duty and other charges should be reviewed. The construction industry is a real and palpable danger to the Australian economy. The huge up front costs for any building work have squeezed the new and smaller players and concentrated activity in larger firms..Whilst activity is cyclical, outside of the mining sector, construction has been on its knees for four years.