Australian building approvals fell to their lowest in 5½ years in December after recording another sharp decline in the month. For 2018, the total number of approvals was a little above 212,000 — its lowest since 2014 — as the deterioration accelerated over the second half of the year with broad-based weakness across all dwelling types.
Building Approvals — December | By the numbers
- Total dwelling approvals (including the private and public sectors) declined by -8.4% in December to 13,995 in seasonally-adjusted terms, vastly short of the market forecast for a 2.0% rise. After revisions, approvals fell by 9.8% in the previous month compared to the 9.1% decline initially reported by the ABS
- In annual terms to December, total approvals fell by 22.5% (prior rev: -33.5% from the initial estimate of 32.8%)
- Unit approvals contracted by 18.6% in December to 4,752 — its lowest total since July 2012 — with the annual decline at -38.0% (prior rev: -18.8%m/m, -54.3%)
- House approvals declined by 2.1% in the month to 9,244 — the lowest since October 2013 — with the annual decline steepening to -11.1% (prior rev: -3.0%m/m, -7.5%Y/Y)
Building Approvals — December | The details
The deterioration in building approvals continued to gather pace towards the end of 2018. Over Q4, approvals declined by 10.9% to 46,206, which was its fourth consecutive quarterly contraction and the lowest quarterly total since Q2 2013.
Looking into the underlying details, approvals for all types of dwellings have deteriorated. While mostly led by high-rise units (-28.5%q/q), approvals for houses (-8.7%q/q), townhouses (-16.3%q/q) and low-rise units (-10.4%q/q) all weakened over the quarter, as shown below.
In another concerning trend, the weakness in approvals has been broad based across the nation. Only South Australia (+5.6%) and Western Australia (+1.1%) saw approvals rise in December, while there were sharp declines in New South Wales (-8.6%), Victoria (-8.1%), Queensland (-5.8%) and Tasmania (-24.3%).
For Q4, there were double-digit declines in New South Wales (-14.2%), Queensland (-16.7%), South Australia (-11.5%) and Western Australia (-13.7%). Victoria fell slightly by 1.3%, while Tasmania posted a 6.6% rise.
The granular detail provided in the table, below, indicates mixed results for house approvals across the states in December, while the deterioration for units continued.
Highlighting the nation's two-largest capital cities, unit approvals have fallen sharply across the past year; Melbourne down by 52.8% and Sydney by -31.6%. House approvals in Sydney are -16.7%Y/Y, but a comparatively modest -3.0%Y/Y in Melbourne.
In slightly better news, the value of renovations approved increased by 3.1% in December and appear to be gently on a positive trend. The value of non-residential approvals, which are highly volatile month to month, fell by 9.8% in December.
Building Approvals — December | Insights
Building approvals trended lower over 2018, with the deterioration accelerating over the second half. Factors contributing to the weakness include declining property prices, tighter financing conditions and a highly-elevated level of work already in the pipeline. Over recent months, it has appeared likely that residential construction activity would ultimately turn negative towards economic growth. The acceleration in the deterioration in building approvals is clearly a concerning development and slowing residential construction is likely to add to the headwinds facing the domestic economy in 2019.
