Jan +2.5%mth, –28.6%yr (vs mkt +1.5%). Despite gain, the unwinding high rise boom continues to dominate with detail mostly weak.
Dwelling approvals posted a better than expected 2.5% lift in Jan, paring back some of the weakness seen in previous months – approvals slid over 25% through the last three months of 2018. The consensus forecast had been looking for a 1.5% gain.
As a rule, January housing data should be taken with a large grain of salt – the low flows through the holiday period mean any month to month noise is amplified by seasonal adjustment.
The detail was mixed. On the positive side, the weakness in non high rise approvals, which was one of the more striking features of the deterioration between Oct and Dec, showed a decent reversal. Detached house approvals in particular posted a solid 2.1% gain, reversing all of last month’s 1.7% decline (but still down 2.6% on a rolling 3mth average basis). That may be an indication that some of the earlier weakness may have related to longer delays in obtaining finance.
Around units, the detail suggests another sizeable fall for ‘high rise’ was more than offset by a gain in medium density units (which are now above high rise in level terms). We estimate high rise approvals declined a further 10-15% in seasonally adjusted terms in the month, down 35% on a rolling 3mth average basis. The steep drop in high rise activity continues to outpace our assumed path of a cumulative 40% decline by the end of 2019. In contrast, ‘low rise’ unit approvals look to be up an estimated 10-15% in the month on a seasonally adjusted basis, though still moving lower on a 3mth average basis (–9%). Strikingly, ‘low rise’ approvals now slightly outnumber ‘high rise’ approvals – a year ago, the number of high rise was about double the number of low rise.
The state breakdown shows the Jan gain was confined to NSW (+12%mth, –24%yr) and WA (+29%mth, –9%yr), with a lift in the lumpy high rise segment contributing in both cases. Other states recorded declines, Vic –7.9%mth, –36%yr; Qld –3.5%mth, –41%yr and SA –1.5%mth, –10%yr.
The total value of renovation approvals declined slightly in the month but is still up 2.1% on a rolling 3mth average basis 2.2%, down only marginally on a year ago (–4.2%yr).
The total value of non res building approvals rose 6.4%, retracing some of the 9.8% fall in Dec. Abstracting from monthly volatility there are some signs of firming after last year’s pull back with the education sector leading gains.
Overall the Jan update pares back some of the concerning weakness that was emerging through the back end of 2018, particularly around non high rise activity. However, the through the year numbers are clearly still very weak and dwelling construction will continue to detract materially from growth in 2019.
