Building Heading In The Right Direction

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Friday, November 1st, 2013
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Building approvals rise - Australia
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Whether it’s an insane, just-waiting-to-burst bubble or just what economists would call a healthy price signal, booming housing prices are being translated into building activity.

That’s real activity, not just a round-robin exchange of established homes for increasingly gobsmacking sums of money.

It’s an actual pickup in the amount of building work being done, with all the job-creation and positive spillovers to other industries that come bundled with it.

There was a taste of it in the report, from the Housing Industry Association on Wednesday, of a three-year high in new home sales.

A solid September rise in sales extending an upward trend into its twelfth month.  And now, on Thursday, the Australian Bureau of Statistics has reported a jump in residential building approvals by local councils.

It would be easy to dismiss the rise as a blip – it was mostly in a category marked by its monthly volatility.

The 14 per cent rise was dominated by the private sector “other” category – home units, flats, townhouses, apartments, villas, semi-detacheds, anything but free-standing single-dwelling buildings.  That category rose by 32 per cent in the month to a record high.

The trend in free-standing houses is upward, although hardly as steep.

And there’s not so much happening in the other part of the building industry – the non-residential part, where hotels, shops, hospitals and offices are built.

Still, the level of approvals overall in September – housing and non-residential combined was more than $700 million above where it was a year ago.

Even if it flatlines from here, approvals in 2013 will still end up being $5.5 billion higher than in 2012, and $7.9 billion higher than in 2011.

That’s just what the Reserve Bank of Australia wants.  In fact it would probably like a fair bit more of it in response to its ultra-low interest rate policy.

Even at the current level, building approvals – including the possibly exaggerated blip up – only work out to about 5.5 per cent of gross domestic product.

The long run average is closer to six per cent, so it would take another solid step up even to get the industry back to normal.

At least it’s heading in the right direction.

By Garry Shilson-Josling
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