Apartment building approvals ‘back with a vengeance’ led solely by surprise Melbourne jump

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Australian building approvals are “back with a vengeance”, with official data striking its third-highest level on record in November, marking a 15-month high.

But the latest figures from the Australian Bureau of Statistics show the charge is being led solely by Victoria, which recorded a stunning 37.9 per cent gain in the month, compared with a 2.3 per cent fall in NSW.

The Victorian figures pulled the national approvals data higher, with the construction of new homes nationally rising a seasonally adjusted 11.7 per cent in November to 21,055, strongly outperforming market expectations of a 1 per cent decline and eclipsing the previous month’s 0.9 per cent gain.

Meanwhile, in the year to November, building approvals gained 17.1 per cent, the ABS reported in Tuesday’s release.

Approvals for private sector houses were down 2 per cent in the month, and the “other dwellings” category, which includes apartment blocks and townhouses, was 30.6 per cent higher.

“After a faltering about nine or 12 months ago, building approvals have come back with a vengeance,” Market Economics chief economist Stephen Koukoulas told Domain.

Assuming the approvals turn into construction, the news will boost economic growth and employment figures, according to Mr Koukoulas, and so will be taken as welcome news by the Reserve Bank or Australia.

A spike in supply could also lead to dwelling price weakness.

“[The jump in building approvals] is good news in terms of adding to GDP, and for those hoping for as moderation in home prices it’s probably going to be good news because we’ll likely have a lift in supply coming though.”

Melbourne had powerful growth, with 14,858 dwellings approved in just two months, which might usually be taken as a warning of a looming oversupply, but roaring population growth seems to quieten those concerns.

 Alongside Victoria’s 37.9 per cent gain in November, NSW slipped 2.3 per cent, Queensland dropped 2.4 per cent, Western Australia rose 3.9 per cent and South Australia lost 3 per cent.“There was some concern that Melbourne was going to have a glut of property… but Melbourne has the strongest population growth in the country, so the demographics are making any oversupply issue not all that acute,” Mr Koukoulas said.

While the November uplift was driven by a jump in Victorian approvals, up jumping from an already-strong 21 per cent rise in October, the “lumpy” nature of the data could lead to a correction, according to Westpac’s Simon Murray.

“The increase in Victoria was concentrated in private apartment approvals, in particular the high rise component (four or more storey blocks),” Mr Murray noted.

“The high rise series is typically volatile, and November’s surge likely reflects a lumpy project pipeline. This raises the risk of a sharp correction lower in apartment approvals in coming months even though Victoria has been seeing strong population growth.”

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