Plunge in building approvals ‘only the start’

The Australian Bureau of Statistics (ABS) has released its latest Building Approvals data, reporting a 16.4 per cent (seasonally adjusted) slide in housing approvals in May.

A 34.9 per cent plunge in unit approvals drove the decline, with house approvals down just 4.4 per cent.

Building approvals declined across every state and territory, with Tasmania (23.3 per cent) recording the sharpest decline, followed by Victoria (14.3 per cent), NSW (11.3 per cent), South Australia (9.3 per cent), Western Australia (8.9 per cent) and Queensland (7.4 per cent).

According to Angela Lillicrap, economist at the Housing Industry Association (HIA), this is the first time, but far from the last time, in which the impact of the COVID-19 crisis would be reflected in housing approval data.  

“The decline in approvals in May is only the start of the COVID-19 shock in home building,” she said.

“We anticipate building approvals data will continue to decline for a number of months, due to the lag in the approvals process.

“The economic uncertainty in the months prior to May are a significant factor leading to the decline in approvals in May.”

Ms Lillicrap also noted that a “dramatic” fall in home sales in recent months and “slower processing times” for loan applications had also contributed to the fall in building approvals.

The HIA economist added that the federal government’s HomeBuilder scheme – which provides $25,000 grants to eligible home owners looking to substantially renovate or build a new home –  would help offset the fall in approvals.

“HomeBuilder and an easing of restrictions should assist in bringing consumers who delayed their purchasing decisions back to the market and minimise the adverse impact of the COVID-19 shock on employment in the sector, but this will not be reflected in ABS data for some months,” she added.

The ABS data is the latest indicator of a broader downturn in the residential property market, with home prices also beginning to fall off the back of the COVID-19 crisis.

According to the latest data from property research group CoreLogic, national home values fell 0.7 per cent in June, following a 0.4 per cent decline in May.

Residential property prices were initially forecast to decline by up to 30 per cent; however, such forecasts have been revised amid an earlier than expected easing of lockdown restrictions.

AMP Capital chief economist Shane Oliver said he expects prices to decline by between 5-10 per cent throughout 2020 and into 2021.

[Related: COVID sparks second monthly fall in property prices]