Has the home building cycle reached a tipping point?

Has the home building cycle reached a tipping point?
Jennifer DukeDecember 7, 2020

Total dwelling approvals declined 11%, in seasonally adjusted terms, to a 13 month low of just over 15,000 in September, according to the Australian Bureau of Statistics’ latest building approval data.

Tasmania, South Australia and Western Australia recorded an uptick in seasonally adjusted new dwelling approvals in September, at 7.4%, 2.9% and 2.1% respectively. However, drops were seen in Victoria (19.8%), Queensland (8%) and New South Wales (7%).

Detached house approvals dropped by 3% over the month, though are still 7.9% up on the figure 12 months prior. Multi-unit dwelling approvals were significantly weaker over the month, recording a 21.5% fall over the September and a 34.2% drop year on year.

The data represents a potential tipping point in the home building cycle, according to the Housing Industry Association’s (HIA) senior economist Shane Garrett, who notes that dwelling approvals have likely peaked.

 “Monthly approvals reached over 17,000 earlier in the year. During September, we barely hit 15,000,” Garrett said.

“The reduction in new home building is probably an indication of the patchy state of the labour market, as well as increased consumer woes post-federal budget.”

“Recent HIA research shows an annual requirement for 180,000 dwellings to be built each year,” Garrett said.

“The fact that we seem to be drifting below this level of output again is a worrying sign. During the early days of the housing upturn, HIA had been vocal in its calls for policy to facilitate new housing supply to be delivered more readily.”

Master Builders Australia’s chief economist Peter Jones said that despite the drop in approvals they remain confident.

“The residential building upturn looks set to hold at strong levels as apartment approvals ‘take a breather’ after the previous red hot growth phase,” said Jones.

“The 11% seasonally adjusted decline in September was driven by a fall of 22% seasonally in units and apartments due mainly to the longer lead times in gaining approvals for apartment developments and is expected to bounce back.”

Jones said that builders are keen to see lift in approvals for detached houses in order to keep up momentum.

“In the three months to September the number of approvals topped 50,000 for an annualised 200,000 following on from the 194,000 recorded in financial year 2013/14,” he said.

The Urban Taskforce has also expressed concern over the drop in approvals, particularly in New South Wales.

“The apartment market is vital for housing supply in NSW with recent approvals running at around 70% of all homes. Our concern is that the easy sites have now gone and that the more difficult sites will find approvals harder to get. It is important that support for growth at state and local government continues," said Urban Taskforce CEO Chris Johnson.

“Sydney, in particular, must keep the support for new housing as we require 33,200 new homes each year and only completed 22,750 last financial year. While recent improvements in approvals have been positive this latest downturn in apartments is a worry," he said, pointing to the need for a simplified planning system.

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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