Approvals fell by 5% during February compared with January, but the overall picture is one of strength in the sector, according to Shane Garrett, senior economist at the Housing Industry Association, the voice of Australia’s residential building industry.
‘Compared with the same time last year, approvals activity has increased by well over 20%. Typically, approvals can take about six months to translate into activity on the ground, ‘explained Garrett.
‘A continuing strong volume of new supply will flow through to help alleviate dwelling prices for the existing stock. Strong residential building activity is a good thing for affordability,’ he added.
Recent growth in approvals has been driven more by detached houses than by multi units. In the three months to February, detached house approvals rose by 7.3% while multi unit approvals fell by 6.9%.
‘Even though total activity is at a high level, there performance of the multi unit segment shows that parts of the market are afflicted by patchiness. With approvals declining in four states, the market recovery cannot yet be described as broad based,’ said Garrett.
‘It is therefore important that policy settings remain favourable to stronger housing activity. Indications from the Royal Bank of Australia that interest rates are to remain low for some time is welcome. It is also crucial that land supply policies become more accommodative to Australia’s increased housing needs,’ concluded Garrett.
During February 2014, growth in seasonally adjusted building approvals were up 1.9% in Victoria, up 4.6% in Western Australia and up 0.9% in Tasmania. Building approvals declined 5.8% in New South Wales, by 15.6% in Queensland and by 14.8% in South Australia.
In trend terms, building approvals increased by 7.9% in the ACT, but declined by 20.8% in the Northern Territory.
Further data released from the ABS point to further strength in residential construction. Following a strong result in January, the number of owner occupier loans for the construction of new dwellings increased again in February by 0.8% and over the three months to February the rise was 7.2%.
‘This strong growth in housing finance is consistent with other leading indicators of the residential construction sector, including dwelling approvals and new home sales. The owner occupier segment of new home lending is showing encouraging signs,’ said HIA economist Diwa Hopkins.
The data also shows that while the number of owner occupier loans for the construction of new dwellings increased, loans for the purchase of new dwellings declined by 5%. As a result the total number of new home loans to owner occupiers eased by 1% during the month.
Over the three months to February 2014 new home lending to owner occupiers still increased by 2.7% to a level that is 15.4% higher than 12 months previously.
Another strong result was the value of lending to investors for the purpose of constructing new dwellings for rent or resale. In the three months to February 2014, the value of this form of finance increased by 13.2%.
‘The housing finance results auger well for much needed further growth in new home building. A sustained increase in new home building activity which provides Australia with an appropriate supply of housing is a necessary condition for addressing the persistent problems around housing affordability,’ explained Hopkins.
