Apartment plunge drives 16pc building approvals slump in May

Apartment approvals have hit an 11-year low, driving a 16 per cent plunge in new dwelling approvals in May.

Approvals for the construction of new apartments have hit an 11-year low. Picture: AAP

Housing approvals have “finally cracked” after initially showing resilience to the effects of the pandemic, with a collapse in the number of apartment blocks given the go-ahead driving a 16 per cent plunge overall.

The number of monthly new units approved — a notoriously volatile number — dropped 35 per cent in May to an 11-year low, seasonally adjusted figures from the Australian Bureau of Statistics reveal.

House approvals, a better indicator of underlying demand, were also soft, dropping by 4.4 per cent in May to be down 0.4 per cent over the year.

In comparison, the number of house approvals lifted by 2.7 per cent in April, while total dwelling approvals fell by 2.1 per cent.

There were falls across all states, with NSW total approvals down by 11 per cent in May, and by 14 per cent in Queensland.

Businesses have been bracing for a plunge in construction ­activity as a result of the COVID-19 recession, but UBS economist George Tharenou noted that residential building approvals had been “surprisingly resilient, but finally cracked in May”.

The construction sector, which is a major employer and contributor to national economic growth, has been targeted for ­support via the Morrison government’s HomeBuilder program, which offers eligible applicants a $25,000 grant for those purchasing a new home or undertaking a substantial rebuild.

Assistant Treasurer Michael Sukkar told Sky on Wednesday that demand for the $25,000 grant for new home builds and major renovations was running ahead of expectations.

“Overall, today’s data was clearly weak,” Mr Tharenou said.

“For the outlook however, on the positive side, the lagged ­impact of the easing of mobility restrictions, coupled by the ­announcement of the HomeBuilder stimulus, should lift sentiment.”

ABS director of construction statistics Daniel Rossi said there were only “minor effects” of the health crisis evident in the May data, and that “the fall in apartment approvals was broadly ­expected prior to the COVID-19 pandemic”.

Westpac economist Matthew Hassan said the ABS’s comment suggested “house approvals in particular may record a further drop in the months ahead”.

Housing industry groups have warned of a drying up in projects in the back half of the year.

This week’s Australian Bureau of Statistics payrolls figures showed the industry continued to shed jobs in June, while harder hit sectors have staged a partial ­rebound.

House prices so far have ­remained steady through the pandemic, despite the rapid and severe hit to jobs and economic activity.

CoreLogic data released on Wednesday showed national property values have eased by only about 1 per cent since March, when the virus took hold across the country, triggering a massive shutdown of large segments of the economy.

CBA head of Australian ­economics Gareth Aird said he still expected property prices to ease over coming months, but “it looks more likely that the falls will be more modest than initially ­anticipated”.