The great construction boom ahead | Pete Wargent

We’re heading for a residential construction boom. In fact….

Australia’s residential construction boom is already underway.

The “constrained supply” conspiracy theory has been undermined with dwelling commencements heading for all-time record highs piggy-backing off an uplift in dwelling prices and record low interest rates.

The principle restriction of new supply was due to prices not being high enough to motivate developers or stimulate construction, as well documented frequently on this blog, and indeed by the Reserve Bank itself.

Lo and behold, as prices have risen and interest rates have been cut, dwellings commenced are now increasing very sharply.

Nationally, 27,322 houses were commenced in the quarter, a figure which looks set to threaten record highs.

And units and apartments easily smashed the highest number of commencements in Aussie history, coming in at well over 20,000 for the March quarter :

dwelling units commenced

The total number of dwelling commencements is up by more than 22% in a year – no constrained supply there.

That’s the biggest annual increase in a dozen years since 2002.

The main areas of oversupply will be…

for apartments with the rolling annual number of commencements shattering another record high, now hitting a whopping 74,751 :

rolling 12m units / apartments commenced

Completions are also tracking at very high levels with 39,830 completions in the quarter, the highest level since the June 2011 quarter.

This is all great news for the Reserve Bank which wants to stimulate construction activity to offset the fall in mining capex.

The value of new residential building increased by a seasonally adjusted 8.5% y/y.

The value of all residential work done (including alterations, additions and conversions) is increasing very rapidly on a seasonally adjusted basis, and is set to hit record highs:

total value of residential work done SA

In terms of all building work done, which includes new resi building, alterations and additions, and non-residential building, the Australian construction boom is being driven by a massive increase in activity in New South Wales.

NSW is a thriving economy…

And is set to drive forward economic growth over the next couple of years.Some other locations have economies which are set to stagnate or go backwards in coming years .

value of building work done South australia

As noted, these are just a few of the interesting points arising from our chart pack, but there’s much more of note besides, particularly on the house and apartment commencements at the state level.

Now let’s drill into dwelling commencements by property type and by state to see what we can learn…

Firstly, if we take a look at the quarterly number of dwelling units commenced by state, we can see that the number of commencements has picked up very strongly over the last couple of years, following on from dwelling price growth in this cycle.

This is particularly so in the major states, although building activity looks to have tailed off in South Australia at this stage.

That’s all part of the cycle, of course, and South Australia’s time will come again as upwards pressure  on prices gradually returns :

quarterly dwelling units commenced by state

The Chinese impact

We have seen article after article about a surge of interest in buying Australian property from Chinese, and this continues this week.

While the underlying tone of these articles is frequently negative, there are some genuine plus-sides to foreign investment.

Existing owners are happy when they sell to wealthy foreigners of course, but another plus to demand from foreign investment is that it creates new supply.

In particular, the new supply will likely be focused on the large capitals, and I believe that we will find over the coming years that an ever-greater proportion of new housing stock is of the attached apartment/unit type.

Houses commenced

As I already briefly noted here, the number of houses commenced has picked up strongly, but it’s actually apartment commencements that are really going to fuel the construction boom.

Drilling into the number of houses commenced by state, we can see that Western Australia is now in an uptrend, spurred on by low interest rates and a 10% uplift in Perth house prices last year.

In particular, note in the chart below the huge number of houses that have been constructed across Victoria since 2001 as prices have risen strongly, which in part accounts for why vacancy rates in Melbourne and other parts of Victoria are now so much higher than those in states elsewhere.

Comparatively speaking, New South Wales has lagged way behind on this front since the preceding Sydney property boom ended in 2003/4, and vacancy rates in Sydney are consequently considerably tighter on average, putting upwards pressure on prices.

Note that I have not adjusted these figures are not adjusted for seasonality by quarter…they just are what they are :

houses commenced by state

Units & apartments

Looking now instead at apartments and units commenced by state over the long run, this also shows Victoria as having built comparatively high number of units over recent years.

However, in New South Wales and Sydney in particular, activity is really picking up.

Sydney has both a dwelling and an infrastructure deficit, but there is no question that a construction boom is now underway on all fronts :

units apartments commenced by state


The implication of this is that there will likely be an oversupply of new apartments in certain suburbs of Sydney in the coming few years as new stock gradually comes online.
There are cranes on practically every street corner at present.
Although it would be drawing a long bow to suggest that there will be a city-wide oversupply with the Greater Sydney population expanding at around 80,000 per annum, property buyers should as always aim to be discerning in their choices.
Dependent on circumstance investors may be wiser to focus on established dwellings in landlocked suburbs, in particular those where new supply is heavily restricted.
Think of leafy garden suburbs with great transport links to the city where NIMBYism reigns supreme and not those in the Urban Activation Precincts (UAPs) where new high rises will now begin to dominate the horizon.

Dwelling commencements appear to have stagnated in South Australia, where dwelling price growth in this cycle to date has not been great enough to stimulate developer interest.

Note, however, vacancy rates have been tightening quite noticeably in Adelaide and Hobart  over the past year (dwelling commencements have all but collapsed in Tasmania) which in turn suggests that the pressure may slowly but surely begin to rise in these markets.
This, of course, why it is known as a housing market cycle.

Subscribe & don’t miss a single episode of michael yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to michael yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.


Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.

Avatar for Property Update


is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog

'The great construction boom ahead | Pete Wargent' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.



Michael's Daily Insights

Join Michael Yardney's inner circle of daily subscribers.

NOTE: this daily service is a different subscription to our weekly newsletter so...