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Wednesday, 30 September 2015

Building approvals boom passes peak

Approved building work declines

The ABS reported that $5.86 billion of residential building jobs were approved in August, following three separate months in 2015 where more than $6 billion of residential jobs had been approved.

Thus while the rolling annual total of potential building work in the pipeline has hit a record $68 billion, the peak for this cycle is likely now in.

The three city economies which have benefited and continue to benefit the most from the residential approvals boom have been Melbourne, Sydney and Brisbane, in that order. 

Total approvals pull back in August

After a few bonanza months the total number of dwelling units approved slunk back to 18,710 in the month of August. 

The number of detached house approvals tends to be a steadier data series and increased by a solid +4.9 per cent over the month, but this was more than offset by a decline an -11.4 per cent decline in the number of unit and apartment approvals. 

The rolling annual total number of approvals is now at a record high of 226,417 - and both sectors are still tracking higher than they were 12 months ago - but the record 215,000 dwelling commencements seen in 2014/15 is now expected to decline forthwith.

Close to half of all dwelling approvals over the past 12 months were for units and apartments, which is historically speaking exceptionally high. 

The residential construction industry is presently operating at or close to its full capacity, which has resulted in marked inflation in the cost of of bricklayers, bricks, and other materials and trades.

The chart above does suggest, however, that the pipeline of construction work remains strong for the time being.

Capital city approbvals

Greater Melbourne continues to approve the greatest number of detached houses, with another 2,178 waved through in August. 

However there were declines in the month in Sydney, Melbourne, Brisbane and Perth, with most of the strength in detached house approvals taking place in regional Australia in August.

Greater Perth in particular now looks set to slow its pace of building with price action weak and population growth slowing.

The sharp declines were seen in unit and apartment approvals.

Melbourne previously experienced something of a pull forward due to the introduction of a new levy, but unit approvals fell back sharply in all three of the most populous cities in August, with a sharp decline in DA's in Brisbane in the first quarter of 2015 now also being reflected in weakening apartment approvals.

The wrap

Overall this was a fairly balanced result, and one which to some extent should counter predictions of sustained oversupply of housing glut in the capital cities, with building approvals falling back in most cases.

The oversupply risks are greatest in the "high rise" apartment sector, as I'll cover off in a separate blog post.