Building approvals jump in June to ease RBA housing concerns


The Housing MarketA sharp jump in the number of approvals to build new homes should ease central bank concerns that money flowing into housing will boost prices rather encourage greater supply of affordable shelter.

Home building approvals rose 9.3 per cent in June, marking the largest monthly increase in four years, the Australian Bureau of Statistics (ABS) said on Thursday.

The increase beat market expectations of an eight per cent gain and almost offset an unexpected 11 per cent decline in May.

Apart from the blip in May, building approvals have risen for four of the past five months.

CommSec chief economist Craig James said the figures would be welcomed by the Reserve Bank of Australia (RBA), which has raised concerns that cheap mortgages could lead to a house price bubble.

“For now at least, the Reserve Bank governor’s fears of a housing bubble have been allayed,” Mr James said.

“House prices are rising, but only modestly. And judging by a surge in approvals to build new homes, the supply of homes is set to rise to meet the higher demand.”

RBA governor Glenn Stevens warned this week it would be “very real challenge” to ensure the current low cost of housing finance translated into more homes being built rather than higher prices for houses and units.

“This ought to be the time when we can add to the dwelling stock without a major run-up in prices,” Mr Stevens said at a charity lunch in Sydney on Tuesday.

“If we fail to do that – if all we end up with is higher prices and not many more dwellings – then it will be very disappointing, indeed quite disturbing.”

Approvals for private sector detached housing rose of a sixth straight month in June after climbing 4.9 per cent.

Meanwhile, approvals in the more volatile apartment sector climbed 27.7 per cent, after a 43.6 per cent fall the previous month.

ANZ Banking Group economist Alex Joiner said the total of 11,086 building approvals granted in June was well-below the long-term monthly average of 13,000 and that the supply of housing remained at “relatively depressed levels”.

Dr Joiner said the upwards trend in approvals needed to continue to address the imbalance of supply and demand, which had helped to support house prices “in an environment where they where expected by many to fall sharply”.

“The challenge here is not really one for the RBA but for federal, state and local governments that desperately need to address the shortage of housing at a time when Australian population has been growing at a record rate,” he said.

The federal government in October last year increased the first home owner grant to $21,000 for those who chose to buy a new home or build their own home.

The temporary boost will reduce to $14,000 from October 1 this year.

Record low interest rates have also fuelled demand for housing, with the RBA official cash rate now at a 49-year low of three per cent.

However, Macquarie Group senior economist Brian Redican cautioned there was a difference between “building approvals and actually getting the dwellings completed”.

“That’s a bit of a concern that policy makers will have, have we got the capacity to actually put all these new buildings into place,” he said.

Nevertheless, Master Builders Australia chief economist Peter Jones said the signs were positive.

“Provided investors can overcome funding hurdles, the emerging signs of recovery in dwelling approvals should flow through to an improvement in residential building activity over the course of the year,” he said.

The value of non-residential building approvals rose by 94.5 per cent in June, in seasonally adjusted terms, the ABS data showed.

The trend measure, however, fell by 1.3 per cent after the ABS chose to remove the impact of the government’s “building the education revolution” program from calculations.


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