With the Iran war and petrol price inflation and related factors bound to throw a lot of economic curve balls at Australia, and the RBA lined up for one, two or crazily three rate rises, this May Budget for Treasurer Chalmers is set to be his ‘Waterloo’ economic battle. While these building approval numbers are promising, will Treasury and the RBA ruin them?
One of Australia’s persistent economic problems is the shortfall in homes that leads to rising home prices. This feeds into inflation as well as rising interest rates. Well, we could be looking at a turnaround, with private unit approvals surging 101% in March, with strength spanning both high‑rise and low-to-mid‑rise segments.
While the total rise in dwelling approvals was up in March compared to February, with a jump of 29.7% for the month, the numbers show that more Australians are set to live in units or apartments.
We know this because a Westpac economics team’s look at the statistics reported that “private detached house approvals were broadly flat, though underlying momentum remains positive on a smoothed basis.”
That’s eco-speak for a rising trend, though it’s not a dramatic left. Typically, Victoria has been a poor performer for dwelling approvals, with Queensland, NSW and WA showing nice uplifts. Meanwhile SA was lagging.
It’s worthwhile for voters to look at the numbers with the respective state performances for approvals being insightful. Looking at a rolling three-month basis, this is the state breakdown for increases in approval:
- Queensland 26.3% for the year.
- New South Wales 24% for the year.
- Western Australia 20.7% for the year.
- Victoria 2.5% for the year.
- South Australia minus 6% for the year.
In Qld and NSW, annual growth is driven primarily by unit approvals, while in WA, the
bulk of the increase reflects strength in detached housing. In contrast, dwelling approvals growth remained comparatively weak in Vic (2.5%), while SA recorded a contraction (–6%).
Westpac’s Luka Belobrajdic looked at the data and reported: “In Qld and NSW, annual growth is driven primarily by unit approvals, while in WA the bulk of the increase reflects strength in detached housing.”
The question is what lies ahead for an important driver of economic growth, that makes up 10% of our Gross Domestic Product each year. It also should be pointed out that $1 million of spending on building leads to a multiplier effect of $3 million extra economic activity.
And as it impacts house prices, then inflation and ultimately interest rates, the outlook for this sector is important. Belobrajdic isn’t positive. “Looking ahead, further expected RBA cash rate increases across May, June and August, alongside softer dwelling price growth, are likely to temper the near‑term recovery in dwelling approvals. While detached housing momentum has improved, volatility in unit approvals and broader affordability constraints suggest the recovery is likely to remain uneven,” he maintained.
This analysis doesn’t consider what the May Budget could do to the building sector. The Housing Industry Association (HIA) is concerned about Treasurer Jim Chalmers’ plans for property-related taxes
In a press release, the HIA said: “Tax changes will cripple housing supply and punish renters.” It cited the proposed changes to negative gearing and the capital gains tax (CGT) discount as housing supply killers, at a time when the rental market is historically tight.
Independent analysis came up with these best guesses on what these changes could do to supply. Here are the main points:
- Removing negative gearing with minimal grandfathering will lead to 46,000 fewer homes built, a loss of 4,300 jobs and a loss to GDP of $2.3 billion.
- Reducing the CGT discount will lead to less property investment and higher rents.
- Nine out of 10 rental homes are owned by mum-and-dad investors. Stable tax settings have been important to their participation in the sector.
HIA managing director Jocelyn Martin said that the “HIA has consistently warned that Australia is not building enough homes to meet demand. Reducing incentives for rental housing will only widen the gap.”
The SMH’s senior economics correspondent Shayne Wright saw the recent impressive dwelling numbers and wrote the following on X overnight: “Don’t often see changes of more than 100% … but ABS today said approvals for units jumped 101% in Feb. At highest level since June 2018.”
With the Iran war and petrol price inflation and related factors bound to throw a lot of economic curve balls at Australia in coming months, and the RBA lined up for one, two or crazily three interest rate rises, this May Budget for Treasurer Jim Chalmers is set to be his ‘Waterloo’ economic battle.
Will he end up as the Duke of Wellington winner or Napoleon the loser? While these building numbers are promising, will Treasury and the RBA ruin them?
