Building Approvals Rise, But No Recovery Yet


Building approvals lifted a better than expected 12 per cent in July, however this improvement is likely to be short-lived according to economists.

The latest results from the Australia Bureau of Statistics show the improvement was generally better for units, up 22.7 per cent in July after falling to an eight-year low in June.

Private houses still recorded a solid increase at 8.5 per cent, the largest jump since January 2014.

The value of residential building also rose 9.5 per cent in July however the value of non-residential building fell 19.8 per cent after rising 20.7 per cent in June.

The ABS results were impacted by improving sentiment, and various government incentives including HomeBuilder, the NSW cut on stamp duty and the WA building bonus.

Building approvals results July 2020

StateDwelling approvalsHouse approvals
South Australia-10.5%-1.8%
Western Australia-8.3%-3.0%

^Source: Australian Bureau of Statistics

ANZ economists Adelaide Timbrell and Felicity Emmett said the improvement in approvals is probably temporary.

“The weak labour market and very low population growth outlook are likely to keep building approvals trending down, particularly in Victoria where the second wave of Covid-19 and related lockdowns are likely to slow the economic recovery,” Timbrell and Emmett said.

“In particular, the impacts of rising unemployment on the rental market will reduce investor demand. Homebuilder is likely to keep house approvals more resilient than unit approvals this year.”

The economists added compared to February building approvals are still 13 per cent lower overall and 31 per cent lower for units.

Monthly building approvals to 2020

ANZ residential, house and unit approvals over time from 1990 to 2020.

^Source: ABS, ANZ research

Commsec chief economist Craig James said the approval results were a welcome shift in tone for the industry but value of those approvals is still down.

“Given the deteriorating Covid-19 situation in July and August, particularly in Victoria, and a lesser degree in NSW and Queensland we would expect to see falls in the coming months,” James said.

“This [drop in valuations] is no surprise as businesses have shown a reluctance to invest due to the uncertain economic outlook.

“There is a preference for liquidity, business credit growth has weakened, as have investment plans.”

James said uncertainty about the types of space required in the future will also be holding back development plans, particularly around the office, hospitality and accommodation space.

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