Data Diary

December building approvals – housing construction heating up

Posted on 08 February 2010

One sector that is likely to report strong results for the 2010 financial year is the home building sector. Not only do they have the revaluation wind at their back on their inventory, housing construction is now responding to the demand/supply imbalance.  Following are the latest approvals numbers on residential construction:

December is traditionally a quieter month – to strip out the seasonality, the chart maps the change in the 12 month rolling average.  Expect the rate of change to peak over the next couple of months as we lose the ‘down’ months of early 2009 when building approvals fell off a cliff:

This chart takes the 12 month rolling average and annualises it.  It’s useful as a quick gauge of the demand and supply equation – for example, at current immigration rates, the base demand side is broadly 165,000 new dwellings per annum (refer to this paper by Tony Richard of the RBA). If we maintain the building approval levels of recent months – we are right in that zone.  (For example, the December run rate is equivalent to ~162,000 dwellings while November’s is ~172,000.)

See what I mean about the home builders being in for a good second half.  Doesn’t mean that they won’t take a hit longer term if property prices do turn – but the nearer outlook is pretty peachy.