Housing approvals continue to take a hammering as existing house prices decline, affecting confidence and demand for new housing construction. Monthly approvals, the most immediate indicator of activity, plunged 13.5% for detached houses and a massive 27.6% for total dwellings in January.
There was a suggestion that January was affected by seasonal factors such as the processing of fewer approvals by under resourced councils. However, Jack Simpson, an economist at JP Morgan said the total would keep falling. Quoted by Michael Bleby in the Australian Financial Review on 3rd March, Simpson said
,“…we think trend approvals will push lower in the first-half 2023, as further increases in mortgage rates increase the financing costs of new builds and softer house prices make existing dwellings more attractive relative to new homes…”.
However, in the short term there is still a big pipeline of work to get through. The HIA making the point that housing already sold but not yet built, would provide the sector and its suppliers with work until the end of the year before activity slows.
That is also evident when placing the current lower approvals in historic context. Looking at detached houses, combined with Townhouses (1 storey and 2 or more storey) approvals year-ended January totalled 144,994 dwellings. This is still a big number, and given timber is the main structural material, this still represents a lot of work to get through. Furthermore, whilst this is a decline from the record peak it remains above pre-COVID levels.
The approvals also vary across states.
Victoria still dominates the national new housing scene, with 61,706 total dwellings year-ending January 2023. For most states, approvals in January were around the same levels as two years earlier. South Australia and Queensland are both slightly higher, whilst Western Australia is lower.
This reduction in approvals, and in turn falling housing availability, has implications for the rental market. Australia now faces both a housing affordability and a housing availability challenge. Readers can decide for themselves if it’s a crisis, but you can bet people without a home know the system is failing them.
Housing availability is likely to be exacerbated by the increase in net migration which is now starting to flow post-COVID.
The Commonwealth’s Centre for Population annual forecast was released in March. The new forecasts confirm an unexpected gain of 190,000 migrants in 2021-22 against a previously expected loss of 40,900 migrant. Showing how quick migration has turned around, actual net overseas migration for 2021-22 was 150,400.
As shown in the table below this is forecast to increase to increase to 235,000 in coming years.
Source: Centre for Population 2022, Population Statement: National Population Projections, 2021-22 to 2032-33, the Australian Government, Canberra.
Population growth is a double-edged sword. It is great to have migrants arrive and be soaked up into the buoyant labour market, but the nation is struggling to house them. Let us hope plenty of the new arrivals are making their way into the labour hungry housing construction sector, where they are desperately needed.
