Construction approvals increase but recovery is still a long way off

Approvals for constructing new houses and apartments rebounded in November from October’s lows, up 2.9% according to figures released yesterday by the Australian Bureau of Statistics.

However, property experts warn this correction fails to reflect any marked improvement in the construction sector.

The revision was largely due to the decline in private home approvals being revised from -1.5% to just -0.2%, although the decline in public sector units was also revised to -15%, from -18%.

The rise in total approvals was the result of a 10.1% increase in unit approvals while private house approvals fell an additional 0.3% in November.

Paul Braddick, head of property research at ANZ, told SmartCompany while the figures represented an improvement on October they did not indicate a recovery in the sector.

“They are disappointing, particularly given how far interest rates have come off and how significant the housing shortage is in most capital cities, normally with this cyclical turnaround approval rates would be well above what they would be now,” he says.

“Apartment approvals have rebounded but detached house is looking very, very weak and that has always been the bellwether for the market so we are still not convinced all the impediments in the market such as the approvals process and developer contributions that the industry has been railing against for a while have really been dealt with.”

Braddick predicts approvals at an annualised basis may get back to 160,000 per annum over the next 12 months, but he says to go beyond that will require more government action to deal with the problems plaguing the construction sector.

“The government has control over the approvals process, the charges and contributions developers are required to make on greenfield land, along with controlling the land release and a lot of the whole process going from the initial plan,” says Braddick.

Elliot Clarke, economist at Westpac, agreed the ABS figures give reason for concern as private house approvals are little changed from a year ago, and there is no evidence of an emerging uptrend.

“Although private unit approvals are well up on a year ago, they have lost momentum of late,” Clarke said in a statement.

In the coming months, Clarke said approvals will receive lagged support from the October and December rate cuts.

“The trend apparent in the data to November suggests that the construction sector is in need of additional support, this is particularly true outside of WA, pointing to the need for further monetary easing,” he said.