August approvals show “solid rises” in houses, units

Summary: Home approval numbers rise 6.8% in August, contrasts with expected figure; up 31.2% on annual basis; rises across houses, units, nearly all major states; house approvals “still above pre-pandemic range” but units “starting to catch up”; house approvals up 3.8%, apartment approvals up 12.7%; non-residential approvals up 43.8%, residential alterations up 10.0% over month.

Building approvals for dwellings, that is apartments and houses, had been heading south since mid-2018. As an indicator of investor confidence, falling approvals had presented a worrying signal, not just for the building sector but for the overall economy. However, approval figures from late-2019 and the early months of 2020 painted a picture of a recovery taking place, even as late as April of that year. Subsequent months’ figures then trended sharply upwards before easing somewhat in the June and September quarters of 2021.

The Australian Bureau of Statistics has released the latest figures from August and total residential approvals increased by 6.8% on a seasonally-adjusted basis. The rise over the month was in contrast with the 5.0% fall which had been generally expected as well as July’s 8.6% decrease. Total approvals increased by 31.2% on an annual basis, up from the previous month’s revised figure of 21.0%. Monthly growth rates are often volatile.

“While we should always be wary of monthly volatility with this release, the detail was also solid with rises across both houses and units and nearly all major states,” said Westpac senior economist Matthew Hassan.

Commonwealth Government bond yields moved a touch higher on the day. By the close of business, 2-year and 10-year ACGB yields had each inched up 1bp to 0.48% and 1.52%. The 20-year yield finished unchanged at 2.16%.

“House approvals are still convincingly above their pre-pandemic range of 7,500 to 10,500, perhaps due to a shift in preferences towards detached dwellings as more people leave the cities for regional Australia or require home offices and thus larger dwellings. But units are starting to catch up, perhaps reflecting more investor interest in residential property,” said ANZ senior economist Adelaide Timbrell.

Approvals for new houses increased by 3.8% over the month after falling by 5.5% in July after revisions. On a 12-month basis, house approvals were 23.7% higher than they were in August 2020, down from July’s comparable figure of 26.6%.

Apartment approval figures are usually a lot more volatile and August’s total rose by 12.7% after a decrease of 14.3% in July. The 12-month growth figure increased from July’s revised rate of 11.2% to 47.7% as the effect of a large fall in August 2020 bolstered the year-on-year result.

Non-residential approvals increased by 43.8% in dollar terms over the month and by 16.5% on an annual basis. Figures in this segment also tend to be rather volatile.

Residential alteration approvals increased by 10.0% in dollar terms over the month and were 42.4% higher than in August 2020.

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