Fall in approvals point to a peak in housing construction

“The September 2016 building approvals date, released earlier today by the ABS, shows some of the growing fears around the excess heat in the market for new apartments may be premature. The data shows a massive turnaround in apartment approvals, from the strong growth recorded in the August data of 26.3 per cent (year-on-year), to a reversal in the September data, to record a fall over 9.9 per cent measured year-on-year,” Matthew National Manager Housing at Master Builders Australia said.

“Building approvals data has a tendency to be quite volatile when comparing results month by month, but this latest result is an example of how quickly the housing market can respond when market conditions change,” he said.

“Talk of an emerging oversupply in inner-city apartments markets in Sydney, Melbourne and some parts of Brisbane has no doubt made developers and builders in these markets more cautious,” Matthew Pollack said.

“However, Master Builders would caution against being overly bearish on the prospects of inner-city apartment markets while auction clearance rates remain high, rents are growing and house prices continue to march forward,” he said.

“On the government’s own estimates Sydney is projected to have a population of 6.4 million by 2036. On average, that would add 210,000 people to Sydney’s population each year, or pretty much the equivalent of the entire population of Hobart each and every year for the next twenty years,” Matthew Pollock said.

“Elsewhere, the RBA’s decision this week to keep interest rates on hold came with more jawboning of risks for the housing sector. While the rhetoric was more positive overall, particularly on the global economic outlook, there is a heightened level of concern around the impact a further reduction may have on house prices,” he said.

“Master Builders agrees with the RBA’s sentiments.  While acknowledging the role interest rates have played in supporting a much needed boom in housing construction over the past couple of years, Master Builder would caution the Bank to carefully consider the impact that further reductions may have on some of Australia’s hotter housing markets in Sydney and Melbourne,” Matthew Pollock said.