Building approvals rebound strongly during October 2010 – but not across the board

The Australian Bureau of Statistics released their monthly Building Approvals data for October 2010 this week and on a national basis the data was extremely positive.  During October 2010, total building approvals increased by 9.3% due to a surge in private sector house approvals which increased by 23.6%.  Private sector unit approvals also increased however, the increase was at a much lower rate of 1.5%.

Building approvals – private sector houses vs private sector units

Private houses and unitsSource:, ABS

Nationally, total building approvals have now increased by 1.2% for the year however, approvals remain below those levels recorded during the strong home construction years of 2001 to 2004.  Despite the improving conditions nationally, across individual states the results are extremely varied.

Total building approvals – Australia

Total approvalsSource:, ABS

Although the national figure is positive, clearly this result is heavily influenced by the most populous states, New South Wales and Victoria.  Over the year, total building approvals increased by 9.8% in New South Wales and by 13.6% in Victoria.  Despite the increases in approvals, New South Wales’ approvals remain well behind peak periods whilst Victorian approvals are at similar levels.

In all other states and territories the number of building approvals has fallen.  The greatest declines in approvals are currently recorded in Queensland where on an annual basis they are down by -23.9%.  Western Australia has also recorded significant weakness with approvals down -20.6% on last year.

Rolling six month average building approvals – major states

State by stateSource:, ABS

With property values falling over the year in both Brisbane and Perth the weakness in building activity is likely reflective of the resistance by banks to lend money for the construction of housing in these markets.

Between December 2007 and October 2010, Brisbane home values have increased by a total of just 3.6% whilst Perth home values have fallen by -0.5%.  Over the period from December 2007 to September 2010, consumer prices, as measured by the Australian Bureau of Statistics’ Consumer Price Index data, have increased by a total of 8.0% as a result, in real terms Brisbane home values have fallen by -4.4% and Perth home values are down by -8.5%.  Whilst these falls result in properties becoming relatively more affordable, it also indicates that property values were too high and have been undergoing a correction.

With values in these cities falling in real terms it is clear that the banks have responded by being less inclined to lend for new housing.  In comparison, property values have increased by 21.0% since the end of 2007 in Melbourne (13% in real terms) and by 13.9% (5.9% in real terms) within Sydney.  Obviously financiers have been responsive and are proving to be more inclined to lend for new housing in these markets in which value growth is apparent.

With the latest data not including the November interest rate hike and the subsequent extra passed on by banks, we would expect that the higher interest rates plus the slowing of property value growth across the country to result in falling building approvals during coming months.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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2 Responses to Building approvals rebound strongly during October 2010 – but not across the board

  1. Alex Barton December 2, 2010 at 11:15 pm #

    While there may be a shortage in NSW, in the remaining states supply seems quite adequate. NSW recorded the largest jump in approvals this month, but a drop in the approvals figures seems likely in coming months due to the recent November interest rate hike. However, while this was a relatively strong month, in reality it was only a partial reversal of the large falls in August and before. I don’t expect much activity in housing construction going forward, not until mortgage rates begin to ease.

    Alex Barton
    Australian Property Forum


  1. Building approvals rebound strongly during October 2010 – but not across the board | Northern Adelaide Real Estate - December 13, 2010

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