Australian dwelling approvals posted a second consecutive sharp month-on-month decline with a 7.1% fall coming through in May. This followed April's 5.7% contraction, though whereas that outcome was driven by weakness in the higher density segment, May's fall was driven by an unwind in house approvals following the recent expiry of the HomeBuilder grants scheme.
Building Approvals — May | By the numbers
- Dwelling approvals (seasonally adjusted) declined by 7.1% in May to 20,163, falling by more than the 5.0% decline expected by markets. Approvals fell by a revised -5.7% in April from -8.6% reported initially. Annual growth in approvals lifted to 52.7% from 42.4% on base effects.
- House approvals rolled over from a record high level, falling by 10.3% in the month (prior 5.0%) to 13,664 to be up by 53.6% over the year.
- Unit approvals were broadly unchanged in May ticking up by 0.7% (prior -24.0%) to 6,499. This stands 51.0% higher than a year earlier.
Building Approvals — May | The details
The sharp 7.1% fall in headline dwelling approvals in May was driven by the lower density segment as house approvals contracted by 10.3%mth. The details were consistent with the response from the recent expiry of the HomeBuilder scheme to new applicants at the end of March. The scheme initially offered grants of $25k towards new builds (and renovations) provided certain income and price caps were met, then at the start of the year the grants lowered to $15k but with some adjustments to the price caps depending on the location. With the grants closing at the end of March, house approvals are now unwinding from record high levels. The scheme has proved highly stimulatory and has brought forward a significant volume of house approvals in particular.
Approvals for alterations also surged to record highs following the inception of HomeBuilder, but this too is now also starting to unwind with the value of these approvals falling by 12.7% in May to $0.95bn (39.0%yr).
The state data also confirms the HomeBuilder unwinding effect, with house approvals down sharply across all states in May. The sharpest declines were in May were in Western Australia (-17.7%), South Australia (-17.0%) and Queensland (-14.0%), states that all saw a very strong elevation in detached approvals.
Building Approvals — May | Insights
The weakness in May is likely a sign of things to come in the dwelling approvals data, particularly in the detached segment with the support of HomeBuilder now expired. While the scheme has brought forward a high volume of house approvals, there remains uncertainty over how long the upswing in residential construction activity could last beyond 2021.