Dwelling approvals across the capital cities have reached record high levels over recent years and this week we investigate where the approvals pipeline is highest and where may and may not be in a state of oversupply.
The pipeline of housing supply has risen sharply throughout the past two years.
On the back of low interest rates and renewed developer confidence with have seen a surge in dwelling approvals.
Most encouragingly, the rise in approvals has occurred within capital city marketplaces where additional supply is most needed.
The first chart shows the rolling six month average number of dwelling approvals across the combined capital cities.
As the chart shows, approvals have been high, having reached a new record high over the past year.
A big rise in dwelling approvals is exactly what the Reserve Bank was hoping for as the economy transitions away from mining investments.
The rise in approvals does however, raise a number of questions:
- Will these approvals ultimately be constructed?
- Are we approving the right type of housing in the right areas?
- How long will the heightened level of approvals persist for?
- At what price will these new homes ultimately sell for?
Historically Australians have favoured houses over units.
In fact the second chart shows that until recently capital city house approvals have always outnumbered unit approvals.
That has changed throughout the past couple of years, for a time unit approvals outnumbered house approvals however, this has recently reversed.
Unit approvals have lifted to an historic high level over the past few years.
Conversely, there has also been a rise in house approvals however, they have not been abnormally high.
House approvals are currently at a similar level to what they were throughout 2009 and lower than other previous highs.
If we look at the individual capital cities we can see that the combined capital city results don’t necessarily tell the same story across each city.
Across the four largest cities there has been a rise in house approvals over the past few years.
Although house approvals have risen they remain well below previous peaks in Sydney, Melbourne and Brisbane while they are at an historic high in Perth.
It is a similar story in the four smaller capital cities with approvals rising across the board but only house approvals Darwin getting close to historic highs.
The unit market is showing a somewhat different dynamic compared to the detached houses.
Over the past couple of years unit approvals have trended higher across all capital cities except Hobart.
In Brisbane and Sydney they have reached record high levels while in most other cities they have reached their highest levels in many years.
The rise in unit approvals have generally been much more significant than the rise in house approvals.
In a number of capital cities there has been a greater number of unit approvals than house approvals for the first time on record over the past couple of years.
In Sydney, housing supply has been extremely limited for many years so we don’t see a risk of oversupply in that market yet.
In Melbourne supply has been strong for many years and with an unprecedented level of unit approvals it looks as if there are some oversupply risks in this city where new housing has been much more ample than in other cities.
In Brisbane overall supply has been limited prior to the recent boom but the record high levels of unit approvals carry an oversupply risk for that market segment.
Perth’s housing supply has moved much higher, largely focussed on houses. With population growth slowing there may be a risk of oversupply in the detached house market.
The remaining four capital cities have historically had much more sufficient housing supply compared to the four largest capital cities.
We view these markets as continuing along a similar trend however, it does seem that units have been slightly oversupplied in Canberra over recent years.
Looking at demand based on population growth, over the year to June 2013 the rate of annual population growth in each city was: Sydney (80,695), Melbourne (95,497), Brisbane (45,078), Adelaide (13,066), Perth (67,500), Hobart (1,052), Darwin (3,924) and Canberra (6,305).