Building Approvals point to Economic Contraction

Residential dwelling approvals rose marginally in most capital cities in February as the industry returned from their year end break, however the annual pace of change continues to be negative with significant falls in compared to February 2018 that if continuing will lead to a significant fall in construction activity and economic growth. The combined data for the Capital Cities Apartment Approvals reveals that apartment approvals for the 12 months to February 2019 are down 16,423 to 73,902, or -18% on the prior corresponding 12 month period to February 2018. Despite the significant annual decline, the February results were better for Sydney and Melbourne apartments at +7.9% and +8.4% respectively higher than February last year. The annual decline in these markets continues to be significant with Sydney down -18% and Melbourne down -23%. Brisbane apartment approvals dipped again in February down -62% on last February with only 368 units approved in the month. Brisbane annual apartment approvals continues to see the greatest annual decline, down -28% on the previous 12 months. Housing approvals are generally less volatile, however the declines in February approvals follow a significant decline in January and point to a significant slowing. Sydney and Melbourne detached housing approvals fell -19% and 17% respectively bringing their annual growth rates to -3.2% and -1.1%. These markets are clearly entering a new slowdown phase. Brisbane detached housing approvals are also down -21% on last year to record an annual change of -3.3%, whilst Perth is down -101% annually. Such significant movements in apartment approvals reflect the limited appetite developers across the country have to secure approvals given the increased risks they have in maintaining end values, securing funding and meeting pre-sale conditions. Whilst in the short term, the reduced supply will allow excess stock to be absorbed quickly and reduce construction pricing the economic multiplier from the sector will state to impact consumer consumption and overall economic activity.