Dwelling approvals rose in December but remain below their recent peak, as reviewed below by Cameron Kusher.
The Australian Bureau of Statistics (ABS) released building approvals data for December 2015 earlier today.
The results tend to be somewhat volatile on a month-to-month basis, largely due to the more ‘lumpy’ unit approvals.
Following a -12.4% monthly fall in dwelling approvals in November, approvals rose by 9.2% to 18,868 approvals in December 2015.
The 18,868 dwelling approvals in December 2015 consisted of 9,968 house approvals and 8,899 unit approvals. Both house and unit approvals recorded a large jump in December, up 5.7% and 13.5% respectively.
Year-on-year, house approvals are 3.4% higher while unit approvals are -8.3% lower resulting in a -2.5% fall in total dwelling approvals.
Despite the year-on-year fall in approvals they remain at close to record high levels although they are -8.7% lower than their recent record high recorded in June 2015.
Looking specifically at the types of units being approved over the 2015 calendar year, 27.0% were townhouses, a record-low 8.7% were low-rise units (less than four storeys) and 64.3% were high-rise units (four storeys or higher).
The above chart highlights the rising prevalence of high-rise approvals over the past few years, largely at the expense of townhouses.
Of course this is reflective of the large volume of in-fill development taking place, particularly in inner-city areas.
From a developer’s perspective the returns are much higher building to high-densities than there are constructing medium density properties such as townhouses.
More recently the chart shows that there has been a slight easing of high-rise unit approvals however, developers are still overwhelmingly seeking more high-rise approvals than approvals for low-rise or townhouses.
The above two charts show the six month average number of house approvals across each of the capital cities.
The charts show that in most cities the number of house approvals have recently started to trend lower.
In particular this downwards trend is now most prevalent in Perth, Darwin and Canberra.
Despite the recent downwards trend in approvals, they remain well above average levels in Sydney and Perth, are at about average levels in Melbourne, Adelaide and Hobart and Darwin and are well below average in Brisbane and Canberra
Unit approvals have also generally started to trend lower over recent months however, the notable exception is Sydney where they are still increasing.
Despite the recent slowdown of unit approvals they have been at record highs in Sydney, Melbourne and Brisbane and remain at extremely high levels.
The challenge now will be to see how many of these recent approvals end up constructed.
With sales volumes slowing, offshore demand reportedly slowing, investor activity reducing, value growth slowing and concerns of an oversupply in certain areas it will be interesting to see how many of these projects go ahead.
We anticipate that despite the month-to-month volatility in the data, building approvals will most likely trend lower through 2016.
This will be driven in large by the market due to an expectation of slowing value growth and sales volumes.
Furthermore, many are concerned about oversupply in certain markets and developers may find it harder to achieve their pre-commitment targets, particularly for units.
The recent slowdown in investment lending will also impact units more than houses with the last Census showing that units are more than twice as likely to be rented as houses are.
The fact that rental yields have pushed to record lows and rents are unchanged over the year is also likely to act as a further deterrent for buyers of new off-the-plan property.
While the trend in dwelling approvals appears to have peaked, there are still a large number of projects that are either under construction are due to start construction, which implies building activity probably has some way to go before we see a similar easing trend that is visible with approvals.