Dwelling approvals hit new record highs in March 2015: Cameron Kusher

The Australian Bureau of Statistics (ABS) released building approvals data for March 2015 yesterday.

The data showed that over the month there were 19,419 new dwelling approvals which was a record high and 2.8% higher than levels in February. The data highlights that approvals and subsequently new housing construction is continuing to surge across the country.

In March there were more units (9,767) approved for construction than there were houses (9,651). Although this may not sound like a big deal, this has only occurred on two previous occasions.

House approvals were 0.5% higher over the month and are 1.3% higher year on year. In comparison, unit approvals rose 5.3% over the month and are 57.9% higher year on year. Keep in mind that the number of unit approvals tend to be more volatile than houses however, the surge coupled by the fact that there were more approvals for units than houses shows a growing tendency toward new unit construction.

Over the past 12 months, there have been a record high 210,484 dwellings approved for construction which is 11.2% higher than at the same time last year. Over the period, there have been 114,874 houses approved and 95,608 units. Although house approvals outnumber unit approvals on an annual basis, unit approvals accounted for a record high 45.4% of all dwelling approvals over the past year.

While there is a growing prominence of units approvals, so too is there a growing prominence of these approvals being for high density stock. Over the 12 months to March 2015, a record high 60.5% of all unit approvals were for units in a block of four or more storeys. To put this surge into perspective, 10 years ago just 39.7% of unit approvals were for units in these higher density buildings. You only have to drive through inner city areas of Sydney, Melbourne or Brisbane to see that there is a current shift towards much higher density living and today’s data shows there is plenty more in the pipeline.

The capital city data isn’t seasonally-adjusted so it doesn’t line-up with the national data however, over the month there were 15,349 dwellings approved for construction across the combined capital cities. Like the national figures, this was also a record high number of approvals following a 9.7% monthly increase and a 33.5% year on year increase.

Looking at the split between capital city house and unit approvals there were 6,709 houses and 8,640 units approved for construction over the month. House approvals were 7.5% higher over the month and 9.0% higher year on year. Unit approvals increased by 11.5% over the month and by 61.8% over the year. Although total approvals were at a record high neither houses or units recorded their highest month for approvals.

Across the capital cities, dwelling approvals increased over the month in all capital except for Melbourne and Darwin. year on year approvals are higher in each capital city except for Canberra.

Looking at annual approvals across the capital cities, annual approvals are at a record high in Sydney, Melbourne and Brisbane as well as being just shy of a record high in Perth. Hobart (40.4%), Melbourne (25.5%), Brisbane (25.1%) and Darwin (12.1%) have recorded the greatest increases in approvals over the year. Dwelling approvals have fallen -36.8% in Canberra over the year, while increases in Sydney (4.9%), Adelaide (10.3%) and Perth (11.4%) have been relatively moderate.

Annual house approvals were higher in March 2015 than a year earlier in all cities except for Adelaide (-1.3%) and Canberra (-9.0%). Across the remaining cities the annual increases in house approvals were recorded at: 16.5% in Sydney, 14.6% in Melbourne, 29.6% in Brisbane 6.1% in Perth, 54.0% in Hobart and 6.9% in Darwin. What is noticeable from the above chart is that Melbourne (the 2nd largest city) has approved substantially more houses (22,878) than Sydney (the largest city) (13,776). Similarly, Perth (the 4th largest city) has approved far more houses (19,783) than both Sydney and Brisbane (the 3rd largest city) (10,826).

While annual capital city unit approvals have risen by 15.2% over the year, across the capital cities unit approvals were lower over the year in Sydney (-0.2%), Hobart (-6.9%) and Canberra (-49.9%). Elsewhere the annual increases in unit approvals have been recorded at: 35.2% in Melbourne, 21.7% in Brisbane, 36.5% in Adelaide, 28.4% in Perth and 16.6% in Darwin.

When we look at the annual approvals picture, more than half of all approvals over the year were for units in Sydney (66.2%), Melbourne (56.9%), Brisbane (58.6%), Darwin (56.2%) and Canberra (53.9%). Over the past 12 months, a record high 52.7% of all capital city dwelling approvals were for units. Unit approvals have accounted for more than half of all approvals in Sydney, Darwin and Canberra for many years however, it is a relatively new phenomena in Melbourne and Brisbane.

In our opinion this raises some concerns given the rapid ramp-up in unit approvals in these two cities. Although lifestyle preferences are changing we have some concerns about an oversupply of units in these markets. Especially when you consider that unit stock is generally favoured by investors and rents are already growing at their slowest pace in a decade.

Furthermore, capital growth for units is lower than that for houses across four of the five cities in which there have been more unit approvals than house approvals over the past year, the exception is Darwin. Value growth for units over the year has been particularly sluggish in comparison to house value growth in Melbourne and Brisbane.

The data is encouraging; there remains a large volume of new house and unit developments being approved for construction. Much of the new unit stock is high density which by nature means most of it is taking place in inner city areas.

Although there is a strong pipeline of construction we continue to have concerns of a new unit oversupply in certain areas, particularly in inner city Melbourne and Brisbane. There are some concerns a record-high level of approvals, should they ultimately end up constructed, should alleviate some of the housing shortages and contribute to a slowing of the escalation in home values. What is somewhat worrying is that the Sydney market, where home values are escalating rapidly on the back of low overall housing supply, is not experiencing as significant a ramp-up of approvals as we are experiencing across most other capital cities.