Construction boom to flow into 2016

09.Construction boom to flow into 2016

By Jason Cadden


(Australian Associated Press)

Australia’s residential construction boom is on track to run into 2016, with home building approvals posting an unexpected rise in October.

Approvals for new homes rose 3.9 per cent in October to 19,652, the highest number since the all-time peak in July.

The result was driven by a surge in approvals for apartments and was much better than market expectations of a three per cent fall.

Approvals for private sector houses fell 2.1 per cent, but the ‘other dwellings’ category, which includes apartment blocks and townhouses, leapt 10.6 per cent.

Commonwealth Bank of Australia economist Gareth Aird said a couple of large apartment blocks may blow the figures out but the overall trend is still strong.

“The data shows that the pipeline of residential construction to come remains deep,” he said.

“In our view, the current residential construction boom will run well into 2016.”

NSW and Victoria enjoyed the largest rise in approvals, up 22 per cent and 21.1 per cent, respectively, while Queensland and Western Australia recorded falls.

The rise in total approvals during October built on the 2.3 per cent gain the previous month, marking two months of consecutive rises for the first time in 2015.

On an annual basis, approvals are up 12.3 per cent, with a record 233,000 new homes having received the go-ahead for construction.

Mr Aird said strong residential construction boom should keep a lid on prices, especially in Sydney and Melbourne.

He said that is already evident in the CoreLogic RP Data home value index, also released on Tuesday, which showed the first dip in capital city home prices in six months, driven by falls in the Sydney and Melbourne markets.

“We’ve known for some time there’s been a lift in home construction,” he said.

“At some point that should have to slow the pace of home prices, and we’ve seen that in the data.”

HIA senior economist Shane Garrett said residential building was making a crucial contribution to economic growth at a time when other areas of investment were weak.

“Latest HIA projections indicate that new home building is likely to have peaked in 2014/15, and has started to decline from these record levels,” he said.

However, JP Morgan chief economist Stephen Walters said the building approvals data runs counter to other indicators signalling a cooling in the high levels of housing activity.

“Australia currently is building more homes than ever before, but some leading indicators had hinted that construction activity would peak soon,” he said.

“Home auction clearance rates in the major cities, for example, have dropped sharply, hinting at slower house price growth, which helps weaken the incentive to bring new supply onto the market.”


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