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Tuesday 20

November, 201811:12 AM



WA building approvals hit 17-year low

WA building approvals hit 17-year low

Council approvals to build new homes rose by 3.3 per cent in September...

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30.10.2018 04:36 PM

Record-high Aussie life expectancy
WA building approvals hit 17-year low
Building approvals; Consumer sentiment; Life expectancy

Life expectancy: Life expectancy at birth stands at 82.5 years for all Aussies – amongst the highest in the world. Life expectancy for females remained at record-highs of 84.6 years and male life expectancy rose to an all-time record high 80.5 years, up from 80.4 years.

Building approvals: Council approvals to build new homes rose by 3.3 per cent in September after falling by an upwardly revised 8.1 per cent (previously -9.4 per cent) in August. Approvals are down by 14.1 per cent over the year – the largest annual decline in 16 months.

WA building approvals: Western Australia’s rolling annual building approvals fell to the lowest level in 17 years at 17,560 units in September.

Consumer sentiment: The ANZ-Roy Morgan consumer confidence rating rose by 2.0 per cent to 114.6 in the past week. The index is above both the average of 114.2 held since 2014 and the longer-term average of 113.0 held since 1990.

‘Time to buy a household item': Consumer views on whether it is a good ‘time to buy a household item’ fell from 25.0 to 21.9 points last week – the lowest level in three years.

What does it all mean?

Aussies are living longer. In fact, life expectancy from birth for all Australians is at all-time highs. Over the past decade, female life expectancy has increased by 0.9 years to 84.6 years. And male life expectancy has lifted by 1.5 years to an all-time high of 80.5 years. The biggest increase for females occurred in Victoria and the ACT (both up by 1.2 years). For males, Northern Territorians are expected to live 3.5 years longer than ten years ago. 

Across states and regions, the highest life expectancy for females is 85.2 years in the ACT. And for males it is 81.3 years in Victoria. And those on Sydney’s leafy North Shore live the longest – males (85.3 years) and females (88.0 years).

Residential home building across Australia remains firm, but approvals are expected to soften as supply increases, particularly for apartments.

In September, council approvals in Victoria surged by over 30 per cent – the largest monthly gain in ten months on the back of a lift in apartment approvals. Home building in Australia’s strongest performing state remains strong.

And Tasmanian building approvals are just below seven-year highs, reflecting strength in the Apple Isle’s housing market. Home prices are up by around 10 per cent over the past 12 months to September in Hobart, Launceston and regional Tasmania.

But weakness is evident elsewhere as demand from investors continues to decline due to tighter bank lending standards, lifting borrowing costs and falling home prices. In fact, council approvals in Sydney are at three-year lows and Western Australia building continues to fall with approvals at fresh 17-year lows.

Aussies remain resilient in the face of multiple headwinds, including decade-high petrol prices, falling home prices, anaemic wages growth and heightened global equity market volatility. The solid jobs market is supportive of consumer sentiment, which is back above its long-term average.

That said, a key barometer of household wealth, the Aussie sharemarket (S&P/ASX 200 index), fell by 4.6 per cent to 12-month lows last week and is down almost six per cent so far this year. But it was only a couple of months ago that the index was its highest level since December 2007.

The Aussie dollar also fell to a 32-month low of US70.21 cents last Friday. Combined, households appear likely to rein in discretionary spending in the near term, as evidenced by consumers’ views on whether it is a good ‘time to buy a household item’ – with the sub-index falling to its lowest level since late September 2015.

What do the figures show?
Consumer Sentiment

The ANZ-Roy Morgan consumer confidence rating rose by 2.0 per cent to 114.6 in the past week. The index is above both the average of 114.2 held since 2014 and the longer-term average of 113.0 held since 1990.

Four out of five major components of the index increased last week:

• The estimate of family finances compared with a year ago was up from +5.7 to +9.0;

• The estimate of family finances over the next year was up from +23.3 to +25.2;

• Economic conditions over the next 12 months was up from +0.2 to +6.4;

• Economic conditions over the next 5 years was up from +7.2 to +10.5;

• The measure of whether it was a good time to buy a major household item was down from +25.0 to +21.9 – its lowest level in over three years.

The measure of inflation expectations fell from 4.8 per cent to 4.4 per cent.

Building Approvals

Council approvals to build new homes rose by 3.3 per cent in September after falling by an upwardly revised 8.1 per cent (previously -9.4 per cent) in August. Approvals are down
by 14.1 per cent over the year – the largest annual decline in 16 months.

House approvals fell by 2.1 per cent in September, but apartment approvals rose by 10.7 per cent – the biggest lift in eight months.

In trend terms, overall approvals fell by 1.9 per cent. House approvals fell by 1.4 per cent and apartment approvals were down by 2.5 per cent.

Over the past year 224,442 new homes were approved, down from the record high of 242,779 in the year to August 2016.

Dwelling approvals across states/territories in September: NSW (down 6.8 per cent); Victoria (up 30.5 per cent); Queensland (down 10.5 per cent); South Australia (up 7.8 per cent); Western Australia (down 19.0 per cent); Tasmania (up 15.7 per cent). Trend terms: Northern Territory (down 6.9 per cent); ACT (down 8.4 per cent).

The value of all commercial and residential building approvals fell by 6.0 per cent in September to be down 19.4 per cent on the year – the slowest annual growth rate in 6½ years. Residential approvals fell by 7.1 per cent; new building was down by 8.1 per cent; but alterations & additions rose by 0.8 per cent. Commercial building fell by 3.8 per cent in September after declining by 24.7 per cent in the previous month.

Over the year to September, building approvals eased further from the record high of $128.3 billion in March to $124.0 billion in September. Annual commercial building
approvals stood at $44.4 billion in September, down from a record high $49.3 billion in February.

What is the importance of the economic data?

The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

The Bureau of Statistics' monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.

What are the implications for interest rates and investors?

Aussies enjoy the fifth longest life expectancy worldwide according to Bureau of Statistics-sourced health data. Medical and technological advances, less manual work and greater general health awareness are likely behind the continued improvement in male and female longevity from birth. The result has implications for government spending.

Tighter lending conditions, increasing mortgage rates and falling home prices are impacting housing demand, inventory levels and home building.

While there is still a large pipeline of houses and apartments yet to be completed, leading indicators, such as building approvals and AiGroup’s Performance of Construction Index, have signalled weaker activity ahead.

Dwelling investment and activity are moderating and will likely be a drag on broader economic growth for the foreseeable future as the housing market rebalances.

A potential offset, however, is government spending on infrastructure. Engineering construction activity remains buoyant, supported by large-scale public transport and road-related infrastructure projects.

The negative wealth effect from falling home prices has so far shown up in weakening new vehicle sales data. But the impact of recent falling share prices on Aussies’ superannuation balances will require close observation by economists and policymakers.

The Commonwealth Bank’s Business Sales Indicator has been moderating in recent months, pointing to slower household consumption in the September quarter. The Bureau of Statistics’ retail trade report, released on Friday, will be keenly observed. 

CommSec expects no change in the official cash rate until late 2019.

Published by Ryan Felsman, Senior Economist, CommSec
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