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Tuesday, October 27, 2020

Builders brace for bigger hit on approvals

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Construction of new homes in Australia has been seemingly untouched by the coronavirus pandemic, with approvals falling much lower than expected in April.

Approvals for the month fell by a seasonally adjusted 1.8 per cent, data from the Australian Bureau of Statistics showed on Wednesday, far lower than the double-digit decrease the market expected.

In WA, total dwelling approvals rose 2.3 per cent but private sector house approvals rose only 0.8 per cent on the previous month — up from 914 to 964.

The total number of WA dwelling units approved increased from 1165 in March to 1314 in April.

A sharp decline in activity in NSW was the only real drag during the month, with other large States continuing to show growth in both house and attached dwelling approvals.

Economists had forecast a sharp decline after strict restrictions were imposed in late March to check the spread of coronavirus, leading to a drop in spending and investment.

This view was underlined by data from the Ai Group and Housing Industry Association earlier on Wednesday, which showed construction activity continued to decline in May following a plunge to record lows in April.

But the HIA says the lag between project development and obtaining a building approval means the COVID impact on approvals will only be reflected in a couple of months.

Building approvals typically lag early indicators of housing demand, such as new home sales and new loan commitments, the ABS also noted.

“We believe that we haven’t seen much effect of COVID19 on building approvals yet. Our housing report from May shows that the population and employment impacts of COVID-19 are likely to reduce demand for new housing, particularly by investors,” ANZ economist Adelaide Timbrell said.

Approvals for private sector houses were up 2.7 per cent in the month.

Permits in the “other dwellings” category, which includes apartment blocks and townhouses, continued to show volatility, fell 8.9 per cent.

This was likely driven by a sizeable correction in new high-density approvals in NSW, down 29.9 per cent and Tasmania, down 44.4 per cent.

Total building approvals are now up 5.7 per cent in the 12 months to April.

Housing construction activity in Australia has continued to be supported by record low interest rates and strong population growth but this is expected to be impact following the coronavirus restrictions.

“Dwelling approvals are expected to deteriorate over the coming months with all demand channels adversely impacted by the COVID-19 shock,” Maree Kilroy from BIS Oxford Economics, said.

“The federal government has indicated that targeted stimulus for new dwellings is on the way but it likely won’t show through in the approval data for at least a few quarters.”

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