Pipeline of Australia’s housing construction work likely to slow in 2016

In February, Australia’s residential building approvals rose moderately by 3.1% m/m, as compared with January’s decline of 6.6% m/m. The month-on-month increase greatly reflects the permits for high-density housing that grew 7.6%. New South Wales mainly drove the growth, with permits increasing 14% m/m while units/apartments increasing 32% higher. On the contrary, permits for detached housing were somewhat lower in February.

February’s data continues to imply that in 2016, housing construction work’s pipeline is likely to slow down throughout housing and non-residential sectors, according to ANZ. Trend for housing permit remained lower and are 11% below the peak seen in March 2015. In 2015, housing construction contributed 0.5% to the country’s GDP; however, declining building permits imply that the contribution is likely to be negligible this year, added ANZ.

Meanwhile, there is a constant backlog for non-residential building activity; however, current drops in permits of non-residential building have lead to an erosion of the backlog. Constant weakness in permits indicates that a drop in actual building activity looks to be imminent, notes ANZ.

Leasing conditions are outperforming the major CBD prime office markets in Melbourne and Sydney. However, planned office construction is being weighed on by increased vacancy rates and spare capacity in several other markets, says ANZ. Trend permits in the segment have dropped to the lowest level since mid-2009.