There are signs the apartment approvals boom in Sydney and Melbourne has peaked after the latest building approvals figures showed a slump in new construction permits.
The Australian Bureau of Statistics figures showed total building approvals fell by a seasonally adjusted 12.7 per cent in November, with private apartment approvals tumbling by 23 per cent, while approvals to build standalone houses were almost flat, down 0.5 per cent.
Westpac senior economist Justin Smirk said the decline was much bigger than expected.
“Activity in private home construction for particularly the two major states, NSW and Victoria, is holding at reasonably high levels, but it does appear that a big surge in approvals going through for building multi-storey apartments has peaked and is now going through a correction phase,” Mr Smirk said.
The bulk of the decline was in Victoria, where approvals slumped by 35.5 per cent.
But that is not necessarily a problem, according to Commonwealth Bank senior economist Gareth Aird.
“Given the big and protracted lift in building approvals in Victoria [mainly for apartments in Melbourne], it’s not necessarily a bad thing that approvals growth has eased,” Mr Aird wrote in a research note.
“There has been a growing risk of apartment saturation in Melbourne, so a pullback in approvals is prudent for the Victorian housing market in the long run.”
Approvals also dropped in South Australia and Western Australia, while they rose in Tasmania, Queensland and New South Wales.
‘Growth will be peak around the end of this year’
Despite the fall in November, economists said approvals remain strong overall, having retreated from last year’s record highs.
Home building is set to continue to contribute to economic growth this year, Mr Smirk said.
“In terms of adding to growth, their growth will be peaking around the end of this year, so it’s an ongoing positive growth story for this year but it does suggest that we’ll see dwelling construction activity be a little bit more of a drag for growth as we move into 2017,” he said.
But Mr Aird cautioned the jobs generated by the residential construction boom are likely to wane as construction activity peaks.
“To date, growth in the residential construction sector has provided a superb offset to declining mining investment and associated job losses,” he said.
“But as we head into 2016 there is a risk that mining job losses will outpace job creation in the residential construction space.”
Mr Aird said the Reserve Bank will be looking for businesses outside the mining sector to boost their investment spending to make up the shortfall.
“It’s up to other parts of the economy to step up to the plate,” he said.