Building activity on the rise as the property sector edges towards recovery
Year on year approvals are still down as is lending to property investors
31 October 2019 | Marcus Reubenstein
While residential building approval figures for September show an increase in activity, most of it a rebound as the residential property market stages a gradual recovery. “The fall in trend dwelling approvals for September was the smallest monthly decline in six months,” says Daniel Rossi, Director of Construction Statistics at the ABS. “However, the number of dwellings approved remains 21.1 per cent lower than at the same time last year.”
The trend in the value of alterations and additions fell 0.4% and they are up 1.7% year on year. While the trend in the value of non-residential approvals rose 2.5% and they are up 29.7% year on year.
Shane Oliver, AMP Capital Chief Economist, says, “While dwelling approvals rebounded in September, this was due to a 16.1% rise in often volatile apartment approvals which are likely to be back down again this month. House approvals rose just 2.7%.
“The bounce in September also followed several months of sharp falls so the trend is still down in total approvals although there are some signs that apartment approvals may be starting to stabilise around a low.”
Little sign of a boost for GDP
Dwelling construction, particularly in New South Wales and Victoria, fed into GDP growth at a time when commodity prices and the resource sector was coming off its highs. Dr. Oliver thinks there’s not enough in this latest set of data to suggest another boost to the economy.
“Even if approvals start to stabilise around here,” he says, “the lagged flow through from the fall in approvals over the last year points to further sharp falls in housing construction ahead which will act to keep GDP growth weak. Fortunately, some offset is coming from the strength in non-residential approvals which points to stronger non-residential building construction.
“A risk in the slump in dwelling approvals is that as it flows through to weaker housing supply it simply returns the Australian property market to the supply shortfall relative to underlying demand that has pushed prices to expensive levels over the last decade or more.”
Credit growth was weaker than expected with housing credit growth of just 3.1% year on year which is a new record low. The big surprise was that investor credit continues to contract and is now down on a year ago. That said a pick-up in housing finance commitments in recent months still suggests that it should pick up in the months ahead. Meanwhile other personal credit continues to fall and growth in business credit weakened further to 3.3% year on year.
The Reserve Bank of Australia reported that mortgage lending grew by just 0.2% in September, in line with the entire private credit market and record-low lending growth over the past year of just 2.7%. However, lending to property investors fell for a third consecutive month — the first time that’s happened since records began and its largest fall in 28 years.
On the implications for monetary policy, Dr. Oliver says, “We don’t see major implications from today’s data for the RBA which looks likely to hold rates next week reflecting signs from Governor Lowe that it’s not in a hurry to cut rates.”