Residential Permits on the Rise

Building-Construction-IndustryActivity within the construction industry is expected to soar this year after the amount of residential building consents issued reached a level higher than the previous seven years. It is estimated that this could add 2 to 3 percentage points to economic growth spread over three to four years. Something that promises to boost economic growth overall.

Analysts had expected the number of residential permit approvals to fall 2.7% in November however the Australian Bureau of Statistics reported that the number issued has raised 7.5% to 18,245 units since October. Residential permits to build houses fell by 0.3%, while approvals for apartments, townhouses and other dwellings leapt 16.7%. In October, approvals overall climbed by 11.5%, rebounding from a 12% slump in September. On an annual basis, approvals to build new homes surged 10.1%. The strong construction outlook was not limited to residential property, with the value of non-residential building consents rising 22% in the year to November.

Largely due to historic low borrowing rates, and the acceleration of house price inflation in it’s largest cities, Australia’s construction industry has been expanding over the last two years. Interest rates have remained stable for the last year and a half, as the Reserve Bank attempts to stabilize non mining sectors economic activity. Australia’s economy has been growing at a below average rate and unemployment rates have risen, prompting questions as to whether the central bank may be forced to lower rates even more to support overall growth, and create substantial increase in employment opportunity within the building sector. The recent raise in residential permit consents will no doubt take up some of the slack as mining investment winds down.

There are however precautions that need to be considered. Erratically increasing lending does run the risk of excluding a greater amount of first home owners from the property market. “The right policy levers are crucial to avoid perverse outcomes, such as greater difficulty for first home buyers entering the market and a reduction in new supply caused by a drop-off in investment,” said Nick Proud, Executive Director of the Residential Development Council. Attention to these measures will be needed to ensure that the housing market continues to play a positive role in underpinning the strength of the economy and the financial system. Analysts will no doubt be watching all influencing factors carefully over the coming years, hoping for a positive effect on the country’s economy over time.

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