Housing approvals continue to soften, with a shortage on the cards

Australia’s dwelling approvals continued to tumble in August, falling 2.2% compared to July and being down by 22.2% over the year-ended August. Meantime, fed in part by the slowdown in dwelling approvals being somewhat overheated, housing prices are recovering quite quickly after declining in late 2018 and early 2019 as concerns are turning to an expected housing shortage over the next two years.

At 177,540 approvals, as the chart below shows, by the year-ended August 2019, total Australian dwelling approvals were plumbing depths not seen since July 2010 (as the market tracked down) and October 2013 (as the market tracked up).

Fig.10

To go straight to the dashboard and take a closer look at the data, click here.

The chart also shows that the downturn has been quite steep, and is certainly the ‘decline of the decade’. That is unsurprising given that the peak was reached in the ‘climb of the century’.

Perhaps more relevant is that the red line showing approvals of free-standing dwellings is tracking at a far softer decline than that for the market as a whole. Indeed, at 107,053 approvals over the year-ended August, approvals for houses are down a pretty modest 12.3% compared with the prior year.

Below, we can see this reflected in approvals of all dwellings, by type. Other than the largely irrelevant Flats of 1 and 2 Storeys, the solid base of the domestic housing market remains free-standing houses.

Fig.11

To go straight to the dashboard and take a closer look at the data, click here.

The story of the resilience of ‘base-load’ free-standing dwellings is well worn in Stats Count, so we can leave that analysis there for now. Most pertinently, examination turns to what will happen next in the housing market.

If you have not already done so, it may be of interest to examine the opening item in this edition of Stats Count, addressing the building pipeline in Australia.

In late October, CoreLogic reported its latest analysis that shows housing under construction was below the decadal average and that as a consequence, a return to undersupply is inevitable. The situation is likely to be felt most in Victoria and specifically in Melbourne, over the next two years.

However, talking to the Australian Financial Review’s Michael Bleby, the head of research at CoreLogic, Tim Lawless also said that the undersupply could be resolved relatively quickly, with prices rising to the point where developers will begin to ‘dust-off’ plans and prepare for the next phase in Australia’s housing development. Feeding into that, Mirvac for instance has reported increased inquiries since the latest round of interest rate cuts.

Expectations appear to be that the housing recovery is already underway, with approvals over the next few months likely to provide the much-needed indicator of renewed vigour in the sector.