The week that was
Just when everyone thought that new housing activity was about to go into reverse, out came the building approvals data that showed a huge rise of 11.7 per cent in the number of dwellings approved. This was the third highest ever recorded. Effectively all of the increase in the month was in apartments (multi-units) in Victoria which, on reflection, is not all that surprising given the rapid population growth in that State and resilience in dwelling prices in Melbourne. With spending on dwelling alterations and additions also trending to a record high, it is safe to say that dwelling investment will keep adding to GDP growth for the next few quarters, at least.
Non-residential building approvals were also strong, up 35 per cent on the level of a year ago. As the bottom chart shows, there has been a huge lift in investment in offices, educational facilities and industrial property. Construction of retail property is falling away sharply. In line with the more positive tone in business surveys, it is close to certain that non-residential building activity will be a major addition to GDP in 2018.
The week ahead
In addition to the all-important labour force data, next week has the housing finance data which has confirmed a generally solid level of new lending, despite the tightening in the rules around investment properties and interest only loans.
The housing finance market has two clear segments with diverging trends. The investor component of the market is now in clear decline, while owner-occupiers are still borrowing at a high level, despite the already record level of household debt. These trends are set to continue in the months ahead. The RBA is hoping that, over the medium term, growth new borrowing will be less than growth in household incomes. This will, by definition, see the debt to income ratio fall from the current record highs.