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Construction spikes before virus shock

The number of dwellings approved for construction in February jumped by almost 20 per cent when compared with January, highlighting the strength of the market prior to the coronavirus hit.

The Australian Bureau of Statistics (ABS) has released its monthly Building Approvals report for February 2020, which reported a 19.9 per cent increase in the number of dwelling approvals across Australia in seasonally adjusted terms.

According to economists, this was the largest month-on-month rise seen since 2013; however, the high will be short-lived, as March results are set to encompass the economic impact of the worldwide outbreak of the coronavirus (COVID-19).

The spike in overall dwelling approvals in February was driven by attached private sector dwellings, including units and townhouses, which increased by 61.7 per cent in February, when compared with the previous month.

Meanwhile, the approval numbers of private sector houses fell slightly month-on-month, down 0.8 per cent (seasonally adjusted) from January.

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Despite strong overall growth numbers, the number of new dwelling approvals are down 5.8 per cent when compared with February 2019, in seasonally adjusted measures.

The number of detached housing approvals are down 4.9 per cent (seasonally adjusted) compared with February 2019, while the number of attached dwelling approvals are down 7.9 per cent in the same period.

In February 2020, the dollar value of total building approved rose by 4.6 per cent in seasonally adjusted terms, with the value of residential building up 14.2 per cent month-on-month, while the value of non-residential building fell by 6.1 per cent (seasonally adjusted).

Economists stated that the figures highlight the strength of the Australian property market and construction sector in the early months of 2020; however, they expect March figures to be largely disappointing.

Maree Kilroy, economist at BIS Oxford Economics, stated that the February building approval figures were “stronger than expected”, and that the 19.9 per cent hike in approvals is the largest month-on-month gain seen since 2013.

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However, she said the February data is no longer an accurate representation of the construction sector or housing market, as figures were taken prior to the beginning of the international outbreak of COVID-19.

“The latest data lead will have little impact on activity over 2020, and the momentum that was building in the residential property market will now be lost,” she said.

“The COVID-19 pandemic is expected to cause a second leg down in the residential construction downturn.

“Extreme economic anxiety and the banning of public auctions and open house inspections will see the demand for new dwellings take a big hit over the remainder of 2020,” Ms Kilroy concluded.

HIA economist Angela Lillicrap shared a similar sentiment and said that while the February results were strong, they are highly unlikely to continue into future ABS releases.

“Building approvals increased by 3.9 per cent in the three months to February 2020 compared to the previous three months, providing further evidence that the housing market was accelerating into 2020,” Ms Lillicrap said.

“These results, along with other leading indicators such as new home sales and housing finance data, continue to confirm that the housing market reached a turning point mid-way through 2019. 

“The market had contracted by 28.8 per cent from the December quarter 2017 to the June quarter 2019,” added Ms Lillicrap.

“Approvals strengthened across the board with both detached houses and multi-units experiencing quarterly increases of 2.9 per cent and 5.4 per cent, respectively.

“Victoria was leading the states with a 22.6 per cent improvement in the three months to February 2020 compared to the previous three months, to be up by 18.7 per cent on the same period last year.

“At least up until the end of February, we were looking at solid home building activity across most regions for 2020,” concluded Ms Lillicrap.

[Related: Household wealth spikes ahead of COVID-19 drag]

Construction spikes before virus shock
Construction spikes
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Hannah Dowling

Hannah Dowling is a journalist for mortgage business, the leading source of news, opinion and strategy for professionals working in the mortgage industry.

Prior to joining the team at Mortgage Business, Hannah worked as a content producer for a podcast catering to property investors. She also spent 6 years working in the real estate sector at a local agency. 

Hannah graduated from Macquarie University with a Bachelor of Media and Journalism. 

You can email Hannah at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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