Dwelling approvals remain at near record high levels thanks to high-rise approvals: Cameron Kusher
GUEST OBSERVER
The Australian Bureau of Statistics (ABS) released building approvals data for October 2015 earlier today.
Focusing just on dwelling approvals, although they were slightly lower than the recent record high levels, the overall number of dwellings approved for construction remain extremely high from a historical standpoint.
There were 19,652 dwelling approvals in October which was 3.9% higher over the month and 12.3% higher year-on-year. If we look at approvals over the past 12 months there has been a record high 233,180 approvals which is 17.3% higher year on year.
In October 2015, there were 9,435 houses and 10,218 units approved for construction nationally. House approvals are -2.1% lower over the month and -2.3% lower year-on-year. The more ‘lumpy’ unit approvals have increased by 10.1% over the month and are 30.2% higher year-on-year. The data highlights the rising prevalence of unit approvals and this is particularly reflected if we look at the annual approvals. For the first time ever there have been more units approved (117,072) over the past year than houses (116,111).
With the rising prevalence of unit construction there has also been a record high proportion of high-rise approvals over the past year. Looking at unit approvals over the past year, 25.5% of approvals were for townhouses, 9.1% were for low-rise (less than four storeys) and 65.4% were for high-rise (four storeys or more).
To put the rise in high-rise into context, a year ago 56.5% of unit approvals were high-rise, five years ago the figure was 38.1% and a decade ago high-rise accounted for 36.9% of unit approvals. Clearly densification and demand for inner city living is driving the rising demand for high-rise units.
It’s also important to note that over recent years, Chinese and Indians have overtaken New Zealanders and those from the United Kingdom as our largest sources of migrants. While New Zealanders and those from the United Kingdom often prefer houses like most Australians, Chinese and Indians are much more accustomed to living in smaller homes and in much higher density environments. This is another driver of the growing prevalence of high-rise approvals.
Turning to approvals in the capital cities, there were 17,236 capital city dwelling approvals in October which was 15.9% higher over the month and 16.9% higher year-on-year. There were 6,691 houses and 10,545 units approved for construction over the month. House approvals fell by -1.8% over the month to be -6.6% lower year-on-year while unit approvals increased 30.8% over the month and were 39.2% higher year-on-year.
Across the individual capital cities, house approvals generally fell over the month however, they have for the most part been trending higher of late but are lower relative to a year ago. Over the month there were 1,373 approvals in Sydney, 2,244 in Melbourne, 945 in Brisbane, 1,410 in Perth, 540 in Adelaide, 77 in Hobart, 43 in Darwin and 59 in Canberra. Year-on-year the changes in approvals have been recorded at -3.8% in Sydney, +2.4% in Melbourne, -6.8% in Brisbane, -23.9% in Perth, +24.4% in Adelaide, +6.9% in Hobart, -30.6% in Darwin and -45.9% in Canberra.
While housing approvals may be showing early signs of slowing across the capital cities, the same can’t be said for unit approvals which in most cities remain at or close to record highs. Across the capital cities there were 3,630 approvals in Sydney, 3,640 in Melbourne, 1,671 in Brisbane, 677 in Perth, 561 in Adelaide, 6 in Hobart, 215 in Darwin and 145 in Canberra. The year-on-year changes in approvals have been recorded at +73.7% in Sydney, +32.6% in Melbourne, +37.4% in Brisbane, -10.8% in Perth, +18.4% in Adelaide, -80.6% in Hobart, +83.8% in Darwin and +0.7% in Canberra.
Based on the data it seems that the demand from developers to seek approvals for units, particularly high rise approvals, is continuing to climb. Countering this is the slowing in detached housing demand. As mentioned earlier, the biggest sources of migration to Australia are more comfortable with high-rise development and this coupled with the fact it is relatively more affordable than detached houses seems to be driving the demand.
The challenge from here with value growth now slowing is how many of these approvals will be delivered to the market. We already have concerns surrounding potential settlement risk for projects already under construction given that banks have recently changed lending requirements to investor. Keep in mind that unit stock is much more likely to be purchased by investors than detached houses.
Although there has been a slight easing of approvals over recent months they remain at near record highs. Of course population growth is winding down, particularly overseas migration, which should result in an ongoing improvement in housing supply relative to housing demand.
Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him here.