Construction has been one of the standout performers of the Australian economy for a good while now, and the latest figures show this has continued to be the case. May data from the Australian Bureau of Statistics (ABS) shows dwelling approvals increased 0.9 per cent in trend terms over the course of the month, as more Gold Coast property developments and projects in other parts of the country were given the green light.
Although the results are well worth celebrating, the Housing Industry Association (HIA) stressed that some weakness has started to emerge. This is particularly so in the multi-unit dwellings sector, where total new approvals declined 5.2 per cent between April and May in seasonally adjusted terms.
Reasons behind the trend
One of the main reasons why multi-unit dwelling approvals may have dipped is that the market reached its peak a few months ago, as indicated by HIA senior economist Shane Garrett. It’s been the case for some time now that this is the sub-sector of the construction industry that has helped support the rest of the industry and now it’s time for another area to step up to the plate.
It’s also possible that the Reserve Bank of Australia’s (RBA) May rate cut announcement could have had a part to play. RBA governor Glenn Stevens announced that the official cash rate would be reduced by a further 0.25 percentage points to reach 1.75 per cent, making it an all-time low.
Mr Garrett highlighted that this may have given detached home building a new lease of life that hadn’t previously been possible. He said it may have contributed to the “steadier conditions” in the market that detached home construction so desperately needed.
When making its announcement, the RBA stressed that the risks emerging from lower interest rates were no longer as prominent as they had been in the past. As such, it made sense to reduce the official cash rate and give further financial support to the property sector – something construction is now reaping rewards from.
Giving future support to the homebuilding sector
As with any area of the economy, it’s critical that policymakers provide whatever support the homebuilding sector requires in order to succeed. Whether this takes the form of further cuts to the official cash rate or some other policy measures isn’t yet clear, but the HIA believes it’s important for action to be taken in one form or another.
“Today’s figures fit closely with our view that new home building activity is in the process of declining from last year’s record peak to more modest levels as the end of the decade approaches,” noted Mr Garrett.
“The contraction in activity is predicted to be concentrated on the multi-unit side, with a more measured reduction in detached house building.”
One of the greatest challenges is the one facing private sector dwellings, excluding houses. The ABS data reveals that in seasonally adjusted terms, approvals were down 11.3 per cent, which is significant given the wider context of the results.
On a more positive note, the value of total buildings approved increased 1 per cent in May, making it the fifth month in a row that a rise has been registered. In fact, the value of residential construction was up 1.5 per cent, offsetting some of the 0.2 per cent decline in non-residential building.
To gain access to some of the most up and coming property developments on the Gold Coast, make sure you get in touch with our team. We can talk you through the latest projects in the region and help narrow your options before you put down a deposit on your new home.