AAP Finance

Building approvals sank in May

By AAP Newswire

Approvals for the construction of new homes dropped more than expected in May, reflecting the impact of coronavirus-related lockdowns on the sector.

Building permits slid by a seasonally adjusted 16.4 per cent in May, data from the Australian Bureau of Statistics showed on Wednesday.

For the 12 months to April, building approvals were down 11.6 per cent.

The monthly result was worse than the 10-12 per cent decline that economists had forecast after strict restrictions were imposed in late March to check the spread of coronavirus, leading to a drop in spending and investment.

Approvals for private sector houses were down 4.4 per cent in the month to 8,515.

Permits in the "other dwellings" category, which includes apartment blocks and townhouses, however, sank 34.9 per cent to 3,920 - the lowest in 11 years.

The ABS said that minor effects of COVID-19 were apparent in the headline results, but the fall in apartment approvals was broadly expected prior to the COVID-19 pandemic.

Housing construction activity in Australia has continued to be supported by record-low interest rates and strong population growth but these are expected to be impacted following the broad coronavirus restrictions.

Victoria and New South Wales were the hardest-hit states in May, consistent with the much larger drop in high-rise approvals, but all states recorded sizeable declines.

Approvals in Victoria slid 14.3 per cent in May, while NSW recorded an 11.3 per cent decline. Approvals fell 9.3 per cent in South Australia and 8.9 per cent in Western Australia.

"The large fall reflects the sharp decline in housing market activity in April due to lockdown restrictions, where approvals lag housing market activity as it takes weeks for a building permit to be approved once lodged," NAB economist Kaixin Owyong said.

That lag means further falls in approvals are likely, given the mobility restrictions that came into place in late March were the start of the economic hibernation.

"While current and future near-term falls in building approvals could just reflect a pause in activity, the COVID-19 pandemic has had a lasting impact on household and business incomes," AMP Capital economist Diana Mousina said in a client note.

"The future state of the labour market looks much weaker than before COVID-19, so it will take some time for residential construction to lift back to its pre-coronavirus levels," she added.