Earlier this week the Australian Bureau of Statistics (ABS) released building approvals data for April 2015.
The data showed that after a record high number of approvals in March, approvals fell to their lowest levels since November of last year.
Despite the fall, when compared to historic levels, dwelling approvals remain very high as the dwelling construction boom continues.
In April there were 18,715 dwelling approvals nationally which was -4.4% lower over the month from a record high in March.
Although the number of approvals fell over the month, they were still 16.3% higher year-on-year.
Over each of the past six months there have been more than 18,000 dwelling approvals each month.
To provide some context as to the surge in approvals, over the past decade there has been an average of 13,922 approvals each month while over the past two years, the average has increased to 17,861 approvals a month.
Of the 18,715 dwelling approvals in April, there were 10,264 houses and 8,451 units approved for construction.
Over the month, house approvals rose by 4.7% and house approvals recorded their highest monthly volume since February 2010.
On the other hand, the more volatile unit sector saw approvals fall by -13.6% over the month which is their lowest monthly level since October 2014.
Year-on-year, house approvals have increased by 8.8% while unit approvals have increased by 26.8%.
Over the past 12 months, a record high 45.9% of all dwelling approvals were for units.
Looking more closely at the type units being approved, the data shows that there is a surge in high density unit approvals; note that this data is not seasonally adjusted.
Over the 12 months to April 2015 there were 26,594 townhouses approved for construction compared to 69,814 apartments.
Of the townhouses approved 33.6% were one storey and 66.4% were two or more storeys.
Looking at the apartments, 7.7% were in a one or two storey block, 8.4% were in a three storey block and 83.9% were in a four or more storey block.
High-rise apartments (ie four storey’s or higher) accounted for a record high 27.6% of all dwelling approvals over the past year.
It is clear that developers are building more higher density stock which is, in most instances, located within or close to the city centre of our major capital cities.
Focusing on capital city data, which is also not seasonally adjusted, it shows that in April there were 12,843 dwelling approvals.
The 12,843 approvals was a -16.7% decline in approvals over the month however, year-on-year approvals were 13.0% higher.
Over the month dwelling approvals fell across most capital cities except for Melbourne, Darwin and Canberra.
Year-on-year monthly dwelling approvals are higher across each capital city except for Adelaide.
Of the 12,843 capital city dwelling approvals in April, 6,300 were for houses and 6,543 were for units.
It was the seventh consecutive month in which unit approvals were greater than house approvals.
Over the month, house approvals fell by -6.0% compared to a much greater -25.0% fall in unit approvals.
Year-on-year house approvals have increased by 11.3% compared to a 14.6% rise in unit approvals.
Over the 12 months to April 2015 there has been a record high 163,576 dwelling approvals across the combined capital cities.
To put the surge in approvals into perspective, two years ago there had been just 117,549 approvals over the year.
Over the year, dwelling approvals increased across each capital city except Canberra and were at record highs in Sydney, Melbourne and Brisbane.
The greatest increases in approvals over the year were recorded in Hobart (53.0%), Brisbane (28.0%), Melbourne (22.7%) and Darwin (22.0%).
Approvals fell in Canberra (-24.8%) over the year and increases were relatively moderate in Sydney (8.6%), Adelaide (6.7%) and Perth (12.5%).
There were 76,872 capital city house approvals over the past year, which is a 12.6% year-on-year increase and the highest number of approvals since the 12 months to May 1989.
The number of house approvals was higher over the year across all capital cities except Adelaide (-2.1%) and Canberra (-14.2%).
The greatest increases were recorded in Hobart (52.3%), Brisbane (27.0%) and Sydney (18.4%) while increases were more moderate in Melbourne (14.3%), Perth (6.1%) and Darwin (8.3%).
In Sydney (34.0%), Melbourne (43.3%), Brisbane (42.8%), Darwin (42.8%) and Canberra (37.7%) less than 50% of all dwelling approvals were for houses.
In Adelaide 62.9% of all approvals were for houses compared to 72.2% in Perth and 84.3% in Hobart.
There were a record high 86,704 capital city unit approvals over the 12 months to April 2015, an 18.0% year-on-year rise.
Annual unit approvals were at a record high in Melbourne and Brisbane.
The annual number of unit approvals was higher over the year across each capital city except for Canberra (-30.0%).
The greatest annual increases in approvals were recorded in Hobart (56.8%), Darwin (34.8%), Perth (33.2%) and Melbourne (29.9%).
The annual increases were only slightly lower in Brisbane (28.7%) and Adelaide (25.9%) but much lower in Sydney (4.1%).
After recent record high approvals, we may have passed or are currently close to peak approvals
As the Reserve Bank has previously stated, the challenge is extending this period of heightened construction for as long as possible.
With many banks now tightening lending criteria for investors that may prove difficult.
New stock, particularly units, tends to appeal to investors because of the depreciation benefits as well as the higher yield profile and strategic location of many of these new developments.
With investor lending a focus by the banks, some projects may start finding it harder to achieve the necessary pre-sales to enter construction.
As shown in the ABS’ data released last week relating to construction work done, engineering construction is slumping due to the end of the resource investment boom.
Residential building is increasing and assisting in offsetting this decline however, the improved performance of the residential construction sector is nowhere near large enough to offset the downturn in mining related investment entirely.
The ABS building approvals data will be very important to watch over the coming months as we start to see what, if any effects, there are from the banks tightening their lending criteria.
If it results in a fall in the residential construction pipeline (dwelling approvals), it will make the Reserve Bank’s job of rebalancing the economy even more difficult, particularly as mining investment continues to slide.