Building approvals fall sharply in November

Approvals for the construction of new homes plunge in month.

Generic photo of construction and cranes over Fortitude Valley and Brisbane City taken from Brookes Street, Bowen Hills - Picture: Richard Walker

Building approvals plunged in November as construction activity cools amid a softening real estate market, according to official data.

Approvals for the construction of new homes fell 12.7 per cent in seasonally adjusted terms in the month, according to the Australian Bureau of Statistics. The result is a much deeper decline than the expected 3 per cent drop. It comes after building approvals lifted by an unexpected 3.9 per cent in October, seasonally adjusted.

Over the 12 months to November, building approvals fell 8.4 per cent, the ABS said, missing expectations of a 3.9 per cent drop.

Approvals for private sector houses fell 0.5 per cent in the month and annual growth is running at -2.2 per cent, while approvals for apartment blocks and townhouses declined 23 per cent in the month.

“An incredible 35.5 per cent fall in approvals in Victoria was the catalyst for today’s weak report,” Commonwealth Bank economist Gareth Aird said.

“There has been a growing risk of apartment saturation in Melbourne so a pullback in approvals is prudent for the Victorian housing market in the long run.”

CommSec chief economist Craig James said building approvals tend to be volatile month to month and a sharp fall in November could be followed by a rebound next month.

“But in the big picture sense, there are clear signs that we’ve seen the peak of the boom and are coming down the other side,” he told Business Spectator.

“It had to happen eventually, we knew it was coming, and I expect a general easing to more sustainable levels over 2016.”

From a growth perspective the result means that construction will remain buoyant over the next year, but the contribution to growth will wane in the second half of 2016, Aird said.

The huge decline in approvals for apartment blocks and townhouses is in contrast with the October result, which was driven by a lift in approvals in that segment of the market.