Aside from engineering and architectural design, one of the earliest requirements of a building project is to obtain approval from the relevant statutory body. As a result, building approvals data is a leading economic indicator of future construction. While not all projects which have been approved are completed, all completed projects will have been granted approval. Approvals data thus provides a useful indicator of future construction.
The latest building approval figures have been released by the Australian Bureau of Statistics and they indicate total approvals leapt in November. Compared to October, total November dwelling approvals were 11.7% higher (after revisions). On a 12 month basis, total approvals were 17.1% higher than in November 2016 (after revisions).
House approvals fell by 2.8% in November, which translates to a 1.2% rise over the previous 12 months. Apartment approvals are a lot more volatile (see chart below) and they jumped by 28.7% for the month and they were 5.8% higher than November of last year.
Daniel Gradwell, a senior economist at ANZ, said he expects approvals to remain at elevated levels after taking into account some drop-off in Victoria. “This strong overall result is likely to unwind next month, as Victoria surely will not sustain such levels of activity. Having said this, leading indicators such as finance for the construction or purchase of new housing continue to point toward further increases in approvals…We therefore expect approvals will continue to trend higher over the near to medium term, albeit with volatility from month to month. It seems pretty clear to us that any fears of weaker dwelling construction in 2018 are misplaced.”
Westpac economist Simon Murray was less enthusiastic than his ANZ peer. “The increase in Victoria was concentrated in private apartment approvals, in particular the high rise component (four or more storey blocks). However, the high rise series is typically volatile, and November’s surge likely reflects a lumpy project pipeline. This raises the risk of a sharp correction lower in apartment approvals in coming months even though Victoria has been seeing strong population growth.”
Bond and currency markets were mixed in their reactions. 3 year bond yields added 2bps to 2.14%, 10 year bond yields increased by 3bps from 2.65% to 2.68% but the local currency was slightly lower at around 78.20 U.S. cents.