Building approvals posted a steep drop in August dragged down by a slump in apartment permits, according to data released by the government statistician.
Residential building approvals dropped 9.4 per cent in August, following on from a large fall in July.
But while the data from the Australian Bureau of Statistics showed permits to build houses fell by 1.9 per cent from a month earlier, it was the sharp 18 per cent drop in apartment approvals that most shocked the market.
"Tighter credit conditions are the main reason we expect dwelling approvals to continue to trend lower in the near term, consistent with the near-term signal from the housing finance data," said ANZ economist Felicity Emmett.
Total residential approvals are down close to 14 per cent year-on-year. Unit approvals are down 24 per cent seemingly more affected by tighter credit conditions than house approvals which have fallen a much more modest 4 per cent. "We expect that approvals will continue to trend lower in the near term given the tighter credit conditions facing both developers and would-be new home purchasers," she said.
Non-residential approvals were also weak in August, with the value of approvals down 24 per cent, reversing the strong gain in July.
New housing no longer resilient
Overall, in the first six months of 2018, 'new' housing activity had previously been resilient to the drag from falling house prices and credit tightening, with house approvals trending near 230k, supported by booming population, according to UBS economist George Tharenou.
“However, the slump in the last couple of months to a 2-year low of 198k – if sustained – suggests 'new' housing may also be starting to roll over”
Looking ahead, he expects dwelling commencements to fall moderately to 210k in 2018 and 195k in 2019, and house prices to decline between 5 and 10 per cent, keeping the Reserve Bank of Australia on hold until 2020. But if approvals keep falling, he thinks there would be downside risk.
"Meanwhile renovations are now also trending down, amid falling home sales. Finally, the weaker trend in non-residential building approvals – if sustained – suggests momentum for business investment is also easing, after rebounding in the last year."