Dwelling approvals hit a new record high - growing appetite for units

The November 2014 dwelling approvals data has been released and it makes for very positive reading. 

In November there were 18,245 dwelling approvals across the nation, according to the Australian Bureau of Statistics (ABS). The dwelling approvals data is published from July 1983 and from that month until November 2014 there has never been more approvals over a one month period.  Dwelling approvals increased by 7.6% over the month and year-on-year they have increased by 10.1%.

Source: CoreLogic, ABS

Looking at the approvals data, the 18,245 monthly approvals were comprised of 9,404 house and 8,841 unit approvals. 

House approvals were actually -0.2% lower over the month while unit approvals increased by 17.2%.  As the chart above shows, unit approvals tend to be much more volatile than house approvals. 

Unit approvals are trending higher once again while house approvals are flat.  Year on year, house approvals have increased by 3.6% compared to a much larger 18.0% increase in unit approvals.

Source: CoreLogic, ABS

There is now a substantial pipeline of dwellings approved for construction.  Over the 12 months to November 2014 there were 199,174 new dwellings approved for construction. 

The annual number of dwelling approvals is approaching 200,000 and is also at an all-time high.  Over the past year there were 113,734 houses and 85,439 unit approvals.  House approvals have increased by 15.5% and unit approvals have risen by 11.3%. 

To further highlight the significant number of approvals of late, over the past two years there have been 374,401 new dwellings approved for construction.  If we assume the Census figure of 2.6 persons per household, that is enough housing approvals for 973,443 persons.

Source: CoreLogic, ABS

Looking at the relationship between dwelling approvals and population growth we see there has been a significant improvement over the past year or so. 

Population growth is now trending lower while dwelling approvals are at record high levels.  There still remains a significant gap between population growth and dwelling approvals, as has been the case for the past decade, but the gap between housing demand and housing supply is improving. 

Importantly, net overseas migration which creates more housing demand than natural increase is trending much lower.  The population data is only currently published up until June 2014 however, if population growth continues to trend lower (and overseas arrivals and departures data indicates that it will) this bodes well for a better balance between population growth and approvals.  It should also go some way to easing pressure on housing both from a purchase and rental perspective.

The capital cities have also had a record month in November with an all-time high 14,816 dwelling approvals over the month.  Capital city dwelling approvals were 1.4% higher over the month and have increased by 13.4% year-on-year.

Source: CoreLogic, ABS

In November there were 6,207 capital city house approvals and 8,609 unit approvals.  Unit approvals reached an all-time high and were 14.9% higher over the month while house approvals fell by -12.8% and were at their lowest level in five months. 

Year on year capital city house approvals have increased by 5.9% compared to a 19.5% rise in unit approvals.  Similar to the national figures, the chart shows that unit approvals across the capital cities tend to be much more volatile than house approvals. 

The other trend to note is that how over recent years the number of unit approvals has regularly outnumbered house approvals.  This reflects the growing appetite for unit product, particularly within inner city areas of the capital cities.

Given some earlier concerns that dwelling approvals were starting to fall, this month’s result is quite encouraging.  Of course, the rebound was driven by the volatile unit market which could just as easily reverse next month. 

Nevertheless, when you see a record number of monthly dwelling approvals and annual approvals are at an all-time high it is a positive result.  Furthermore, with population growth slowing, if approvals can hold at or close to current levels, a better balance between population growth can be achieved.  In-turn this would likely ease some of the value and rental growth pressures in the market. 

Overall it is a very good result and it would be economically beneficial to see approvals remain at these elevated levels over the next 12 months.  Of course, with value growth already slowing across the capital cities and sales volumes trending lower it may start to become more difficult for some of these developers, particularly those of unit product, to achieve sufficient presales to commence construction. 

While the pipeline of approvals is very strong, it will be important to monitor just how many of these approvals ultimately make it to completion.  Particularly given the number of unit approvals is at an unprecedented level.