June building approvals hit eight-year low, falling 4.9 per cent

Building approvals for June dropped much more sharply than expected, falling 4.9 per cent to hit the lowest level in eight years.

The number of new buildings approved fell more sharply than expected during June. Picture: Brett Wortman

Building approvals have fallen to an eight year low, dropping for the fourth month in a row in June as the coronavirus recession and sharp drop in population growth take their toll on the housing sector.

The number of new houses and apartments approved for construction was a little over 12,200, 5 per cent lower than in May, and the lowest level since 2012.

“Slow population growth, elevated unemployment and rising vacancy rates are all slowing the demand for new housing,” said ANZ Economist David Plank.

“Compared with February, monthly building approvals are down 23 per cent including a 7 per cent decline in house approvals and a 43 per cent decline in units,” he added.

Analysts had expected a 2.8 per cent decline overall between May and June.

The ABS released suggested the government’s $680m HomeBuilder policy, which provides $25,000 to build a new home for contracts signed between 4 June and the end of December, was having an effect.

The value of alterations and additions rose by 11.4 per cent in June, which was 2 per cent lower than a year earlier.

National Australia Bank economist Tapas Strickland said closed international borders had stopped immigration was made up around two thirds of Australia’s population growth.

“Acting as some offset will be the government’s HomeBuilder scheme that tends to favour detached house construction with anecdotes of strong lot sale enquiries,” he said.

Mr Strickland said if approvals remained at this monthly level the annual rate of building would be around 147,000, down from a peak of 240,000 in 2016.

The Housing Industry Association said the downturn was “exacerbated by the lockdown”.

“The COVID-19 shock has occurred on top of a well advanced cyclical downturn in home building activity that began back in 2018. Dwelling approvals during 2019 had already declined by 17.3 per cent compared to 2018,” it said in a statement.

Among the states, NSW led the slump in approvals, falling 14.8 per cent during the month. Nationally, private home approvals were the worst hit, down 5.7 per cent, while private sector dwellings excluding houses were down 5.3 per cent.

Westpac senior economist Matthew Hassan said approval numbers would likely improve in coming months, as a result of the Homebuilder scheme.

“The value of approvals for alterations and additions and for non residential building both posted strong gains in June but were coming off big pull backs over the previous three months and are still below March levels,” he said.

Mr Hassan also noted building approvals will likely understate weakness within the housing construction sector, as many existing projects were likely to be delayed or scrapped.

The HIA said it was “too early to see an impact in the approvals data”.

“We anticipate building approvals data will continue to fall for a number of months, before HomeBuilder halts the decline,” it added.