Recent data from the Australian Bureau of Statistics (ABS) reveals a continued recovery in residential building approvals, with a notable 6.3 per cent rise in January, reaching 16,579 total dwellings approved.
This figure represents a substantial 21.7 per cent increase compared to the same period last year.
However, the growth is uneven, primarily fuelled by a surge in approvals for large apartment projects, particularly in New South Wales.
According to the ABS, private sector dwellings excluding houses experienced a significant monthly increase of 12.7 per cent, totalling 7,213 approvals.
In contrast, the more stable private sector houses category saw a modest rise of just 1.1 per cent, reaching 9,042 approvals.
Ivan Colhoun, Chief Economist at CreditorWatch, highlighted the divergent trends.
“While helpful in the medium term for the sector, which has been experiencing elevated insolvencies, it would be more helpful if house approvals were also recovering,” Colhoun noted.
He pointed out that house approvals have softened in recent months, potentially due to an overhang of existing stock, leading builders to offer discounts on project homes.
The discrepancy between apartment and house approvals is unusual, with the CPI reporting discounting of newly constructed homes.
Colhoun suggests that larger apartment projects may benefit from easing construction material prices, especially steel, as well as government support and anticipation of lower interest rates boosting housing demand.
The Reserve Bank of Australia’s (RBA) recent interest rate reductions are expected to further support the construction sector.
Colhoun anticipates another rate cut in May, which should provide additional stimulus.
The improving trend in approvals offers some relief to the construction sector, which, along with Food and Beverage Services, has been grappling with high insolvency rates.
However, Colhoun emphasised that stronger house approvals would be more beneficial for smaller construction businesses and subcontractors.
The approvals recovery is most pronounced in states experiencing strong population growth, including New South Wales, Victoria, Queensland, Western Australia, and South Australia.
While the cyclical upswing in approvals is a positive sign, the softening of house approvals amid discounting raises concerns.
The RBA’s signalling of fewer interest rate cuts than market expectations adds another layer of uncertainty.
Nevertheless, a further moderation in inflation could pave the way for another rate cut at the May Board meeting, potentially providing further support to the construction sector.
