Aussie home building approvals up 5.9%

Approvals to build new homes in Australia jumped a surprisingly strong 5.9 per cent in November, further evidence of a construction boom that will increasingly foster growth.

But yesterday’s data failed to sway market expectations which remain evenly split over whether the Reserve Bank of Australia (RBA) would raise rates again next month, with investors awaiting key job and inflation data due later this month.

Approvals for apartment blocks, a typically volatile sector that suffered during the crisis when funding dried up, led the way in November with a whopping 32 per cent jump.

That lifted total building approvals by a third from November last year, the biggest rise in 71/2 years.

‘Construction activity will be very buoyant in 2010, ensuring solid activity levels for firms in building material, construction and engineering sectors,’ said Craig James, an economist at the Commonwealth Bank.

Activity in non-residential approvals was equally impressive, with the value of work up 53 per cent during the month thanks largely to generous government stimulus spending on schools.

The overall strong report eclipsed a 1.9 per cent dip in approvals for new private houses, marking a pause after an 11-month rally.

Analysts at Commonwealth Bank say the construction boom could last two to three years and add 2-3 percentage points to economic growth.

This is without accounting for sizeable additional expenditure incurred by house buyers furnishing their new homes.

Indeed, the buoyant property market prompted the RBA to say last year it would be ‘disturbing’ if low mortgage rates led only to higher home prices, which are already at record highs, and not more home building.

It has since raised rates for all three months between October and December, becoming the first of G20 central banks to tighten policy.

Interbank futures are priced for a 50-50 chance of a 25-basis-point rate rise when the RBA next meet on Feb 2.

The RBA stunned investors last month when it said rates at 3.75 per cent were in a ‘normal’ range, cooling views it was on an aggressive tightening campaign.

Yet, some analysts still see the RBA tightening this year, with elevated house prices supporting spending.

Consumers are certainly jovial, judging from the data.

Sales of new vehicles rose to the highest level for any December on record, with demand boosted by tax breaks.

Unemployment is expected to have peaked at 5.8 per cent, with the job market forecast to recover this year. A survey yesterday showed employment picked up in the services sector even though growth in the industry halted in December.

Fundamentals back the case for higher home prices.

Immigration is at a record and the population is growing at its fastest in 40 years. These come at a time when house supply is tight, with construction languishing below historical averages.

Source: Business Times, 7 Jan 2010