Lift in dwelling approvals and commencements is great news... for now

New dwelling starts are, well...starting.  Approvals are near all time highs.  Actual commencements are on the rise.

The Australian economy is now at a stage where offsets to the downturn in mining capex are starting to come through.

It's great news (for now).

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New dwelling approvals are close to a high point in Australia.  Dwelling commencements totalled 165,000 last year.  They are expected to reach 180,000 during 2014.  This is much higher than the 150,000 annual average over the last seven or so years.  This lift in new housing starts - my boffin friends tell me - will add significantly to the country's economic growth.  In short, more jobs.

The lift in new housing approvals is across most states and territories.  Victoria is coming off a very high base.  Tasmania has little need to build much, given its low population growth.

One chart that reads best if the lines head down is our 'dwellings yet commenced' graph.  The lines are now heading in the right direction.  Only one in 10 detached houses approved across Australia have yet to start construction.  This ratio is one in five for apartments and townhouses.  These ratios are dropping.  All smiles.

It takes, on average, about three months from approval to start building a detached house in Australia.  About five months for a townhouse, nine months for walk-up flats and 18 months for mid to highrise apartments.  Sadly, it takes years, more often than not, to actually get a new development approval. But enough whinge.

Dwelling prices are on the rise, up 10% over the last 12 months.  Australia's two largest cities are mostly driving this growth.

House price growth - despite Harry Dent's recent efforts - is not showing any signs of slowing down.  And really, why would it?  Strong population growth, very low-interest rates (so far), an undersupply of stock and an expectation of further house price appreciation are fuelling demand. 

Yes, I do think that there is an element of 'irrational exuberance' now taking hold in Sydney and even Melbourne.  It may even find its way up north to South East Queensland by the end of this year.  We haven't had a party up this way for yonks and we look forward to a bit of cheer.

Until new dwelling supply now starts to respond - i.e. dwelling commencements rise in line with approvals - then upward pressure on dwelling prices will remain whilst interest rates are low.

An increase in new dwelling supply is now coming.  Given this trend, interest rates are now likely to remain steady.

    History has a way of repeating - hence there is a property cycle - and this coming lift in new housing supply (which is great for job creation and actually housing people) will most likely peak when interest start to rise.  These twin lifts will see the housing market soften.  But for mine, that is some 18 to 24 months away.  And the 'soft' should be nothing like a fall of 30% to 50%!

    Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.

    Read Michael’s Blog or follow him on Facebook and Twitter or connect via LinkedIn.


    Michael Matusik

    Michael Matusik

    Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.

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