Dwelling construction suffers setback but remains high

According to Westpac senior economist Matthew Hassam, this short-term trend “underscores the impact of an unwinding pull-forward associated with the HomeBuilder scheme”.

Pointing to a 6.7 per cent month-on-month decline in building approvals revealed by recent figures released by the Australian Bureau of Statistics, Mr Hassan said the fall is broadly in-line with the bank’s previous forecast of 5 per cent.

It also corresponds to an 18 per cent fall in approvals. However, Mr Hassan said “that despite these falls, total dwelling approvals are still at a very high level, up nearly 50 per cent yr and 16.7 per cent above their pre-pandemic peak.

“While there are almost certainly more HomeBuilder-related declines to come, activity is coming from a strong starting point,” he said.

Mr Hassan argued that the influence of the HomeBuilder scheme can be best understood by breaking Australia’s property market into three segments: units located in major capital cities, markets where the median price is above $750,000, and everything else.

He said that it’s this third group that experienced the biggest surge in construction activity, noting that “while the first two categories are largely unaffected due to the design and initial caps on the scheme, the last group captures the bulk of the HomeBuilder effect”.

Mr Hassan said that dwelling approvals in the sub-$750,000 market “surged a phenomenal 80 per cent between the scheme’s inception in June last year through to its expiry in March.”

While approvals have fallen since then, it’s a stark contrast to the milder gains and milder declines found in the other parts of the market.

In the months ahead, Mr Hassan predicted “further substantial declines” for this sub-$750,000 slice of the market.

With an eye to Sydney’s current lockdown, Mr Hassan said that reports indicate that the construction pause affected approximately 10 per cent of building work currently underway in NSW, or about 4 per cent on a national level.

Describing this disruption as towards “the lower end of the range of estimated impacts”, Mr Hassan noted that things “could worsen as disruptions continue”.

Fortunately, “approvals may show less of an impact given the relatively minor disruptions seen during last year’s national lockdown”, he predicted.