Australian dwelling approvals were 8.6% lower in July, continuing their unwind from the recent peaks associated with the HomeBuilder stimulus. Approvals remain at elevated levels but could be hit by the current lockdown cycle, particularly as the restrictions have impacted activity on construction sites.
Building Approvals — July | By the numbers
- Dwelling approvals (seasonally adjusted) fell by more than expected in July, declining by 8.6% for the month to 17,601 against -5.0% forecast (prior: -5.5%m/m). Annual growth in approvals slowed to 21.5% from 51.6%; the base period coinciding with the start of the HomeBuilder grants scheme.
- House approvals contracted by -5.7% to 11,752 (27.3%yr)
- Unit approvals declined by -14% in the month to 5,850 (11.3%yr)
Building Approvals — July | The details
National dwelling approvals continued to unwind following the closure of the HomeBuilder scheme to new applicants at the end of March. As of July, dwelling approvals were 24.9% lower than their peak in March. The 8.6% fall in July extends the retracement to a 4th consecutive month following the declines of -5% in April, -8.4% in May and -5.5% in June.
From their low point last year, private sector detached house approvals soared by 85% to reach a record high in April. Approvals were brought forward on the support of HomeBuilder, while low interest rates and rising house prices were also key factors. The segment is now driving the unwind, with approvals around 24% down on their peak. Private sector unit approvals have also slid over recent months to be around their level at the end of last year.
House approvals across the states further highlight the retracement underway, though even allowing for the completion of HomeBuilder, approvals remained at high levels. To highlight the point, compared to pre-HomeBuilder 2020 lows, approvals in July were 76% higher in Western Australia, 59% in Queensland, 35% in South Australia and 30% in New South Wales and Victoria.
Approvals for alterations were also boosted by the HomeBuilder grants as they were available for substantial house renovations. Since a record high value of alteration work ($1.13bn) was approved in April there has been a retracement, pointing to the wind-down of the scheme. However, at just under $1bn for July alteration approvals remain very elevated. Strong growth in house prices may be encouraging owner-occupiers to make improvements, as could more time at home due to lockdowns. Tightening rental markets and a strong pick-up in investor activity over recent months may also be another source of strength in the renovations segment.
Building Approvals — July | Insights
Similar to recent reports, building approvals continue to come down from the peaks earlier in the year following the end of the HomeBuilder scheme. The scheme, and other stimulus measures, have ensured there is a now substantial pipeline of residential work. Surprisingly, the recent construction activity data suggested residential construction flatlined in Q2, possibly with some supply constraints in the mix. Lockdowns will lead to further volatility in approvals and construction activity in Q3, but beyond these disruptions the outlook is strong.
