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Home building slump to weigh on economic growth

by James Mitchell10 minute read
The Adviser

The latest figures from the Australian Bureau of Statistics show building approvals fell by 12.7 per cent in November after rising for two months.

AMP Capital chief economist Shane Oliver said the fall was much stronger than expected, driven by a 24 per cent decline in approvals for town houses and apartments.

“While multi’s are normally volatile and could well bounce back again, building approvals overall look to have peaked,” Mr Oliver said.

“Peaking building approvals point to slowing growth in housing construction in the year ahead.

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“This is occurring at the same time that the positive wealth effect for consumer spending from rising property prices in Sydney and Melbourne is fading. Both mean that the contribution to economic growth from housing is set to slow in the year ahead.”

Despite the sharp fall recorded, the total number of approvals in the three months to November 2015 was still 7.9 per cent higher than the level recorded in the same period a year earlier, according to HIA economist Geordan Murray.

“Detached house approvals held relatively steady falling by only 0.6 per cent in November. In contrast, there was a substantial fall in approvals of ‘other dwellings’ (predominantly multi-unit dwellings) of 24 per cent in the month.

“At face value, the 24 per cent fall in approvals appears substantial, however it is important to recognise that it followed on from a particularly strong increases in September and October.”

Mr Murray said the result reaffirms that the peak in the approvals cycle is now likely to be behind us.

“This will add to Australia’s growth challenge in the second half of 2016. The growth in residential building activity over the last few years has made a substantial contribution in offsetting the contraction in mining investment. With the residential building cycle at the peak, we need to see other sectors pick up the baton.”

[Related: 'Sudden surge' in apartments drives building approvals]

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James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.

He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.

James holds a BA (Hons) in English Literature and an MA in Journalism.