Home construction set to ride on detached houses

July 6th, 2021

The outlook for housing construction hangs on the ongoing strength of a stimulus-driven detached housing sector to keep activity ticking over for as long as the country’s lack of immigration remains a drag on apartments.

This was likely, UBS economists said on Monday, even after new Australian Bureau of Statistics figures showed a 10.4 per cent monthly decline in new detached house approvals in May pulled total new dwelling approvals down a seasonally adjusted 7.1 per cent.

“Despite the scaling back of policy support, we still expect strength due to the lag from sales to commencements, ongoing record low interest rates and bullish sentiment, including investors returning,” the UBS team led by George Tharenou said.

The May decline in new detached house approvals was the first since January, but the seasonally adjusted monthly total of 13,664 was still 54 per cent above the monthly figure of a year earlier. New standalone home approvals for the 12 months to May totalled 144,827.

“[The] data supports our long-held bullish forecast for dwelling commencements to up-crash to 230,000 in calendar year 21, before moderating to a still-solid 190,000 in 2022,” the UBS economists said.

ABS director of construction statistics Daniel Rossi agreed that the pipeline remained elevated.

“Although we saw a decline in private sector house approvals in May, this came off the back of the record high in April,” Mr Rossi said.

“Private house approvals remain at elevated levels and are 55 per cent higher than May 2020 and 57 per cent higher than May 2019.”

Apartments not so strong

But while approvals of new apartments level-pegged, with a 0.7 per cent seasonally adjusted gain, month on month, separate figures from an industry survey suggested further weakening in the apartment-building sector that is crucial to the economies of the two largest cities.

The monthly Performance of Construction Index remained in growth, with a June reading of 55.5 – any figure above 50 indicates expansion – but a sub-index measuring apartment construction fell 1.3 points to 48.9, a sign of contraction.

New orders for apartments, a leading indicator, also fell below the crucial 50-measure separating growth from contraction.

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