Wednesday, April 2, 2014

Still more work to do on building approvals (updated)

The ABS building approvals for February were released today with commentary at the following links. Care must be taken again between seasonally adjusted and trend data when interpreting reports. The seasonally adjusted has been quite volatile in recent months.

Conus: Building Approvals trend still strong. Local data also stronger

Macrobusiness: Dwelling approvals retrace

The Conus Trend series (linked above) is showing annual increases of 30.6% for Cairns and 2.4% in Townsville. This should however be seen in the context that approvals in Cairns so far this FY still remain about half those of Townsville. The HTW Month in Review was also released today. While this is not updated for todays approval numbers it provides an interesting context.

Cairns building approvals have increased in trend terms by 47% between January 2013 and January 2014. While this is welcome news it is hardly boom times for the local construction industry given that the increase has come from such a low base. It really means that housing construction has recovered from 20% of 'normal’ to 30% over the past 12 months. Furthermore all of the increase thus far has been in house construction, apartment construction; is still non-existent.
I presume commentary here is mostly from Rick Carr who also posted his latest CairnsWatch last week. Housing approvals in Cairns remain skewed to the 'north' with over double the approvals in February compared to the 'south' (South also includes most of the central city area in the SA2 data).

Update: Pete Faulkner at Conus has taken issue with the HTW numbers with an updated post: More on Cairns building approvals

Although there is no doubt that approvals in Cairns are recovering from a low base, we would take issue with HTW's comment that we are now sitting at only 30% of normal. The most recent peak of approvals (back in late-2009/early 2010) saw trend approvals at a shade under 90 a month. We are presently therefore sitting at just over 50% of those levels.
There can sometimes be some curiosities at times in the HTW trends and I prefer to accept the Conus numbers. It could also come back to what period you are talking about to define "normal" and the chosen period can make a difference!

The pre-GFC construction boom was clearly one of overbuilding in Cairns unrelated to underlying economic activity rather than financially infused madness. Inclusion of that period, and depending on a starting date, will also inevitably skew outcomes.

Numbers relative to population and population growth may be a better guide. Rental trends suggest Cairns has been 'underbuilding' while Townsville and Mackay have been ''overbuilding' and continue to do so despite the underlying data?

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