admin-ajax.php

Sharp fall in unit approvals in October likely marks the peak of the residential construction cycle

The Australian Bureau of Statistics October dwelling approvals data likely marks a significant turning point for unit supply, with the latest numbers showing unit approvals have plunged to their lowest levels in 2 years.

The October data showed unit approvals have consistently trended lower since reaching a recent high point in July earlier this year.

1-monthly-number-of-dwelling-approvals-national

The seasonally adjusted series showed a monthly fall of 23.5% across the unit sector. price drop money property market crash house low arrow down

Compared with the same time last year, unit approvals are down 41.8%.

As can be seen from the graph above, the unit sector shows a higher level of volatility compared with detached housing which implies that there is likely to be some noise associated with the sharp month-on-month fall, however the trend towards fewer units being approved for construction has developed over several months.

Also, despite the sharp fall, the number of unit approvals remains slightly higher than the decade average, indicating that approved unit supply is returning to more normal levels.

2-monthly-number-of-dwelling-approvals-by-product-type-national

The unit approvals drop is mostly concentrated across the high rise unit sector, which had also seen the most substantial ramp up in approvals overt the past five years.

The number of low-rise units has also been trending lower, while detached housing and townhouse approvals are holding reasonably firm.

The national trend is important, however, the trend across the capital cities provides a better understanding of where the downturn in approved supply is occurring.

Across the unit market, the most substantial falls in approvals can be seen in Melbourne and Brisbane, where concerns of oversupply have been the most pronounced. 

property-development-ad-305x292-V4

Even with such sharp falls, the number of unit approvals in Melbourne remain 1.4% higher than the decade average and Brisbane approvals are still 11.2% higher than the decade average.

Importantly, the unit approval trend in Sydney hasn’t shown the same trend towards fewer unit approvals.

The October approvals number was 80.5% higher than the decade average in Sydney.

To date, there hasn’t been a great deal of concern around Sydney’s unit market being oversupplied due to the maturity of Sydney’s densification trend, the geographic diversity of unit supply across the metro area, as well as increased demand for units because of their lower price points and typically strategic locations (close to major working nodes, transport options and amenity).

However, if we don’t see the approval trend peaking over the coming months, it’s possible we will see a similar level of settlement risk emerging in Sydney as what is already visible in Melbourne and Brisbane.

3-sydney-and-melbourne-approvals

4-brisbane-and-adelaide-approvals

5-perth-and-hobart-approvals

6-darwin-and-canberra-approvals

While fewer dwelling approvals across the already crowed high-rise market in Melbourne and Brisbane is likely to be a welcome evolution in the supply cycle, the downside is that fewer approvals hint at a peak in the residential construction cycle as well.

The latest data on construction activity shows that the peak in construction may already be here.

The number of units under construction showed a slight dip over the June quarter, based on ABS data, reducing from approximately 154,000 apartments under construction in March to 151,700 in June.

7-number-of-dwellings-under-construction

The housing construction boom has provided a smoother than anticipated segway from the mining related infrastructure boom, ensuring a consistently positive rate of economic growth across Australiaconstructiontion

As construction work fades, the Australian economy will be looking for other economic growth pillars to fill the gap left by a slowdown in the residential construction sector.

In theory, this would be the perfect time to ramp up infrastructure spending.

Improving existing transport infrastructure and building new roads, railway, tunnels and bridges would provide a multifaceted benefit in creating jobs, increasing productivity via more efficient transport options as well as open up areas that offer up affordable housing options which are currently less desirable due to their inefficient linkages with major working centres.



icon-podcast-large

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.

icon-email-large

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

About

Tim heads up the Core Logic RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia. Visit www.corelogic.com.au


'Sharp fall in unit approvals in October likely marks the peak of the residential construction cycle' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*

facebook
twitter
google
0
linkedin
0
email

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...

REGISTER NOW

Subscribe!