Soaring property prices have yet to reverse the misfortunes of Australia’s construction industry, with building approvals falling to their lowest monthly total in more than six years.
The worse-than-anticipated fall suggests the construction downturn will continue for longer than previously thought – spelling bad news for jobs and wages growth.
Dwelling approvals fell 15.3 per cent in January, meaning 1700 fewer homes were given the go-ahead compared to the month before.
The 13,016 approvals were the lowest monthly total since 2013, according to AMP Capital chief economist Shane Oliver.
Unit and townhouse approvals were down by 35.5 per cent – a fall that was particularly pronounced in Victoria, which had previously seen a surge in units.
ANZ said Victorian unit approvals alone were down 68 per cent month on month – the biggest fall since 2005.
But unit approvals in New South Wales and Queensland both increased.
Houses were a different story, with total approvals edging 0.3 per cent higher over the month.
Analysts had expected a 1.0 per cent gain in total dwelling approvals, though some noted the results would be volatile because of disruptions caused by this season’s bushfires.
The first increase in about 18 months, on an annual basis, was recorded in December.
But the latest figures suggest that result was an anomaly.
Westpac senior economist Matthew Hassan said big swings in results, such as the 15.3 per cent drop, were particularly common in January.
Housing activity is usually subdued in January and figures can be more susceptible to fluctuation.
BIS Oxford Economics economist Maree Kilroy attributed the weaker national result to the slump in unit approvals in Victoria.
She said the house price rebound and the Coalition’s first-home buyer scheme would likely lift results in the months ahead.
Any coronavirus impact would more likely be seen in the second half of the year, she said.
Tuesday’s figures from the Australian Bureau of Statistics stand in contrast to a rebounding housing market, which saw national dwelling prices rise 1.1 per cent in February.
Surging house prices not firing up construction
Home buyers have steadily returned to the market during the past 12 months, encouraged by low interest rates and more relaxed lending standards.
Development activity and auction clearance rates in capital cities have also gathered pace.
Reserve Bank governor Philip Lowe has previously said that the house price rebound should “lead to increased spending, including on residential construction”.
But this has yet to happen.
According to the RBA, that’s partly because Australia has shifted towards building more high-density apartments, with almost as much investment spent on higher-density dwellings as detached houses.
These projects have much longer lead times, as developers need to sell a high number of units before they can access the finance required to build the towers.
And so the construction industry now takes longer to respond to shifts in demand.
Added to this is a whole suite of problems facing Australia’s off-the-plan sector that further delay the impact of rising property prices on construction activity – and on the economy more broadly.
The approvals data comes before the latest GDP growth figures to be released on Wednesday.
Most economists expect the figures will show the economy growing less than 0.5 per cent over the December quarter.