Matthew Cranston

Jan 8, 2020 – 2.02pm

Building approvals jumped 11.8 per cent in November as high-rise apartment developers responded to Reserve Bank of Australia warnings that the collapse in housing construction could see a supply shortage sooner rather than later.

The November result represents the strongest growth in total dwelling approvals since February 2019, and economists now expect a floor in housing demand has been reached.

While the seasonally adjusted monthly dwelling approval numbers are volatile, the November rise more than made up for the previous month’s decline.

Through the noise, there are signs that approvals are stabilising following a period of prolonged weakness.

— Tom Kennedy, JPMorgan

The trend figures also show there has been a bottoming out in approvals and a slight lift in the number of dwellings approved in trend terms, rising 0.8 per cent in November.

JPMorgan economist Tom Kennedy said the fall in approvals had now stabilised.

“The building approvals data are volatile and difficult to decipher from month to month, though the numbers at hand suggest the data are starting to stabilise and may consolidate around current levels,” Mr Kennedy said.

“The data have been particularly volatile of late, but through the noise there are signs that approvals are stabilising following a period of prolonged weakness.”

Mr Kennedy noted that a 21 per cent surge in high-density approvals lifted the annual rate to 6 per cent, the first positive reading in almost 18 months.

Approvals in NSW jumped a massive 52.8 per cent in November and are up 7.1 per cent for the year.

In October, Reserve Bank deputy governor Guy Debelle said a shortfall in housing supply was “quite likely” in the foreseeable future and that would trigger a “larger price response” in property values.

Sydney falls behind

Urban Taskforce chief executive Tom Forrest said Sydney was already falling behind the natural annual rate of demand for new housing.

“In order to reach the new housing target of 36,000 housing completions each year, over 60,000 approvals per year are needed to meet the Greater Sydney Commission’s target,” he said.

“Over the past 12 months, only 50,000 approvals have been granted and today’s release consolidates that downward trend.

“This is alarming news for the NSW Treasury, as the long-term trends show that approvals are dropping well below population growth. That can mean only one thing: prices go up.”

Home values have already jumped 4 per cent in just the past three months, the fastest quarterly growth in a decade.

Sydney has led the way, with prices up 6.2 per cent for the quarter according to CoreLogic. This represents the strongest growth in the country, and could be one of the reasons behind better than expected approvals in NSW.

BIS Oxford Economics’ Maree Kilroy said lower interest rates and easier lending were starting to drive the market again.

“The freeing up of credit, as seen in recent new loan growth, is starting to have a positive effect on new dwelling demand, with the increased churn of established dwellings encouraging upgraders towards new construction,” Ms Kilroy said.

However, Westpac’s Matthew Hassan was more cautious about how the improved approvals numbers could lead to a softer landing in construction.

“We continue to expect approvals to show a muted and slow response to rate cuts, with a gradual lift in non high-rise approvals coming through by mid-2020 but high-rise holding flat near recent lows,” Mr Hassan said.

“Accordingly, new dwelling construction is expected to remain a material drag on growth in 2020 as the delayed effects from the decline in high-rise approvals more than offset gains in other segments.

“Overall the November update pares back some of the downside risks that were emerging from weak reads in previous months, although monthly volatility is making it difficult to be confident about trends.”