Rise & and now fall for building approvals

BULDING approvals have fallen 2.3% in July following an increase of 2.2%, according to the Australian Bureau of Statistics.

Approvals have now decreased in four of the last six months and are down by 9% since January and have fallen by 3.7% since July 2007.

The biggest drop in approvals in July was for private sector houses, which fell 3.4%; approvals for higher density “other” dwellings fell 2.3%, following a revised increase of 9.1% in June.

In addition, the value of new residential building approved fell 1.7% in July whilst alterations and additions rose 5.9%, and the value of non-residential building rose 12.1%.

JPMorgan chief economist Stephen Walters said the near term outlook for home building remains bleak, owing partly to elevated construction and material costs, and excessive red tape deterring some developments.

“Similarly, population growth is accelerating, mainly via higher skilled migration, which means demand for housing should improve over the medium term.

“Indeed, the bottom line for home construction is that Australia needs something close to 170,000 new dwellings to be constructed each year to meet underlying demand. At the current low rate of building approvals, we are on track to build just 150,000 homes.

“Clearly, therefore, Australia is not building enough homes to meet underlying demand. This “under-building” explains why residential rents are soaring and why house prices in the major cities have held up, despite abrupt increases in mortgage interest rates this year, and record low housing affordability,” Walters concluded.

Australian Property Journal