Perth building approvals hit 3-year high

Consumer inflation expectations hit 11-month high
Consumer confidence; Building approvals

Consumer confidence: The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.0 per cent to 110.3 (long-run average since 1990 is 112.6). Confidence is up by 68.9 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

Consumer inflation expectations over the next two years lifted from 3.6 per cent to 3.9 per cent last week – the highest level since April 5, 2020.

Dwelling approvals: Council approvals to build new homes fell by 19.4 per cent to 15,926 units in January (consensus: -2 per cent). Approvals are still up 19.0 per cent on a year ago. The rolling annual total of Greater Perth building approvals hit 3-year highs of 16,701 units in January, up 30.3 per cent on the year.

The consumer confidence figures have implications for retailers, and other consumer-focussed businesses. The building approvals and lending finance data has implications for banks, retailers, developers, building and building material companies.

What does it all mean?

• Consumer sentiment, as measured by Roy Morgan and ANZ, lifted for the first time in four weeks in late February as Covid-19 vaccines were rolled out across Australia. Consumer views on ‘current economic conditions’ rebounded 2.4 per cent last week on optimism about the strengthening economic recovery.

• The bounce-back in economic growth and demand is best represented by surging commodity prices. The CommSec daily commodity index is up 52 per cent over the year. Crude oil prices are straddling 13-month highs with the US Nymex price climbing 25 per cent to US$60.64 a barrel so far in 2021. Motorists have seen retail unleaded petrol prices hit $1.60 a litre on Australia’s East Coast in recent weeks – pushing up consumer inflation expectations to 11-month highs.

• Council approvals to build new private detached houses eased from all-time highs in January. The retracement in approvals comes after the Federal Government’s ‘HomeBuilder’ cash grants for new home builds and renovations was reduced from $25,000 to $15,000 on December 31, 2020. That said, states such as Western Australia have provided extra incentives for homebuilding with the $20,000 ‘Building Bonus’ boosting housing activity. In fact, Western Australian building approvals are up a massive 125.8 per cent in January on a year ago. And the rolling annual number of Greater Perth building approvals hit a 3-year high of 16,701 units in January.

What do you need to know?

Consumer sentiment – Week ended February 28

• The weekly ANZ-Roy Morgan consumer confidence rating rose by 1.0 per cent to 110.3 (long-run average since 1990 is 112.6). Confidence is up by 68.9 per cent since hitting record lows of 65.3 on March 29, 2020 (lowest since 1973).

Building Approvals – January

• Council approvals to build new homes fell by 19.4 per cent to 15,926 units in January. Approvals are still up 19.0 per cent on a year ago.

• Total house approvals fell by 11.2 per cent to 12,390 units in January, but were still up 39.0 per cent on a year ago. Private sector house approvals were down 12.2 per cent to 12,124 units, but were still up 38.0 per cent on a year ago. Public sector house approvals surged 81.0 per cent in January to 8-year highs of 266 units to be up 107.8 per cent on a year ago.

• Apartment approvals plunged 39.1 per cent to 3,536 units in January to be down 20.9 per cent on a year ago.

• Over the past year 186,407 new homes were approved – a 19-month high.

• Dwelling approvals across states in January: NSW (-23.2 per cent); Victoria (-13.0 per cent); Queensland (-33.3 per cent); South Australia (-0.5 per cent); Western Australia (-4.1 per cent); Tasmania (-24.8 per cent).

• The value of all commercial and residential building approvals fell by 16.8 per cent in January. Total residential approvals fell by 17.1 per cent with new building down 17.8 per cent and alterations & additions down by 12.7 per cent. Commercial building fell by 16.3 per cent.

What is the importance of the economic data?

• The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.

• The Bureau of Statistics’ monthly Building Approvals release contains figures on local council approvals to build residential structures such as homes and units as well as commercial premises such as offices and shops. Approval is one of the first stages of the construction ‘pipeline’ and is thus a key leading indicator of future activity. An increase in approvals would point to stronger future activity for construction-related companies.

What are the implications for investors?

• Commonwealth Bank (CBA) Group economists expect dwelling investment to lift in the first half of 2021, propelled higher by rising building approvals and record-low interest rates. But an easing in residential building activity is expected later in the year once the HomeBuilder scheme expires at the end of March. And slowing population growth – with international borders closed – and an oversupply of apartments could also weigh on council building permits.

Important Information

The information presented in this email is an extract of a CommSec Economic Insights report. The full report is published on the CommSec website (under Market News > The Markets). The extract and report are approved for distribution in Australia only and must not be directed or distributed to any person or entity outside Australia, except with the prior approval of your Business Unit Compliance team.

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Published by Ryan Felsman, Senior Economist, CommSec