Record building approvals but figures moderating: Nick Proud
GUEST OBSERVER
Despite reaching new record levels for the year, building approvals are showing the first signs of having peaked according to the latest ABS data for June released today.
The run of record approvals over the last financial year has created a pipeline of new housing construction activity at levels to finally meet Australia’s needs after years of underbuilding.
Nationally the latest ABS Building Approvals were down 8.2% in June 2015 in comparison to the previous month’s figure. For the 12 months to June 2015 however the record-breaking run continued with 220,423 new dwellings approved in seasonally adjusted terms. This was up from 195,302 approvals for the same 12 month period to June 2014.
The figures point to the market operating as it should and responding to new macroprudential settings with the reduction in approvals likely pegged to investor based activity.
The good news here is that when we compare building approvals figures with household formation rates the two are lining up.
The bad news is the signs are suggesting this may have peaked. On average 154,000 new homes are built per year, but this has been falling short by between 2,000 and 14,000 homes of what is required each year over the past 10 years, creating a housing shortfall. However the approvals we have seen over the last twelve months will start to make a dent in the housing deficit, especially in Sydney.
With investment loans likely to be lower, the critical issue is to ensure as many approvals are converted to actual builds as possible to boost supply, especially in Sydney where pricing pressures have been predominantly due to undersupply.
The danger is that measures to contain house price growth in Sydney and Melbourne mean new housing drops away in other states. These states have only just come back to moderate, long-term five-yearly average house price growth off the back of recent strong building activity.
Declining investor numbers and new taxes on foreign investment will impact on the number of approvals that progress to construction. It is vital that strong supply is maintained to moderate housing prices particularly in Sydney and Melbourne.
Governments need to continue to focus on supply side efficiencies in land release, improvements to development assessment and reform of inefficient taxes such as stamp duty to support continued supply.
Nick Proud is executive director of residential for The Property Council of Australia and can be contacted here.