Australia’s residential dwelling approvals continue to step down, hitting 194,043 year-ended August, down 15.4% on the prior year. An increase on July of 28.1% to 17,497 approvals in August appears to be more a part of the periodic noise in the market than some form of reversal of fortunes for a market now settling into its downward trend.
As the chart here shows, the gentle downwards trend for total dwelling approvals continues (the green line), even as the monthly approvals shift around.
In the second chart and associated table, the data demonstrates that compared to two years ago, dwelling approvals remain at heightened levels, at least on an annualised basis. Perhaps the other factor to note here is the continued resilience – relatively speaking – of Houses over most other dwelling formats, coupled with the persistence of growth in the 2+ Storey Semi-Detached (Townhouse) market.
It might be that Houses are the firmament and the baseload for the Australian housing market, but consistent growth is the domain of 2+ Storey Townhouses. Given the volume of timber and wood products in the multi-storey Townhouses of today and the future, that is good news on the demand side.
It may be the forecasts are imperfect, but most commentators have long opined that Victoria’s house approvals would come off quickly, when they start to come off. To date, compared with other states, that has not really occurred. As the chart here shows, as ever among the major states, Victoria has moved up and down more slowly than New South Wales and Queensland.
It does seem a nationwide trend, with the Top 100 builders experiencing a 15% decline in approvals in FY22 compared with FY21. As Michael Bleby reported in the Australian Financial Review, that has led to a number of major builders cutting their workforce back. The rout may be on!
Other than that indicator, the pain is already being felt in WA where the lift in approvals was very short-lived and has crumbled away almost as quickly as it ramped up. Who would have thought a mining-centric economy would rush so quickly from boom to bust?
If we examine just one state – New South Wales – we get a fairly representative view of what happens in the national housing market.
As the next chart shows, as total approvals move up and down in the most populous state, approvals of free-standing Houses is significantly more stable than other formats. Total approvals were 12.9% lower year-ended August 2022 than the prior year, with Houses down 9.0% and 9+ Storey Apartments down 42.0%. The sole survivor in the battle for growth was 2+ Storey Townhouses, up a solid 12.4%.
The difference between the 2+ Storey Townhouses and the 9+ Storey Apartments is significant for a variety of reasons. One worth considering is that there is a much smaller (not zero) influence of speculators in Townhouses than in Apartments. Private investors are reportedly well represented in the Townhouse market, but that is less the case (also not zero) for big apartment blocks.
Essentially, who makes the investment decision is different, or at least, more likely to be different for these two formats. Townhouses seem like a metronome compared with the scatology of demand and supply in the apartment market.
Reported by Poppy Johnston in the Australian Financial Review, the Master Builders’ Association (MBA) expects new home building to be subdued until 2026. The downturn in approvals, the MBA says, will last until 2024, before approvals start back up in 2025, providing increased work into 2026. Rising interest rates are feeding into these expectations, but with labour shortages rife, it is possible there is some over-egging of the impact on the construction sector because there is still a mountain of work in the total construction pipeline and it’s taking longer than ever before to build dwellings.
