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Housing approvals down 0.5% on prior month – softening, not falling

Evidence that the long-awaited end to the sustained housing boom has arrived is continuing to mount with the latest housing data showing new dwelling approvals down 0.5% in June 2016, compared with May. However, the long-tail of prior approvals continues to be evident, with total approvals for the year-ended June 2016 up 1.2% on the prior year, totaling 230,515 separate dwellings.

Although the peak has clearly been reached, Australia’s longest and probably most remarkable (because its composition is so different) housing boom, is essentially continuing. While the chart below shows the plateau for monthly approvals was reached around the end of 2015, since then, the anticipated and widely commented upon bust has yet to materialize. Indeed, it now seems a bust is less likely, although it is never far from the minds of housing sector commentators.

fig12

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

What makes this housing boom so significant is that it reflects what had been a little understood phenomenon of modern Australia. The changing mix of housing types – with emphasis on large apartment buildings, but including a quite rapid move to smaller dwellings overall – has either driven (or allowed, depending on your view) for a large portion of long pent-up demand to be met.

Often discussed, housing affordability may well have kept a very large number of potential new dwelling owners from participating in a constantly rising market. As the chart below shows, while free-standing dwelling (Houses) approvals still dominate, there are two housing forms that continue to grow their share of total approvals – Semi-Detached dwellings and Apartments of 4+ storeys.

fig13

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

On a year-end June basis, approvals of Free-Standing dwellings were down 1.3% to 116,879, while Semi-Detached 2+ Storey dwelling approvals were up 22.6% to 23,989 and the over-discussed Apartments of 4+ Storeys rose 2.1% to 70,042 approvals.

If there is a bust in the offing, it will almost definitely come from the big apartment buildings, approvals of which are fuelled by a mix of investor activity, cheap finance in the form of lower interest rates, lower prices for off-the-plan purchases and a sometimes strong level of developer “enthusiasm”.

However, this potential for a sub-sector of the housing market to decline is one of the peculiarities of this boom. If there is a reduction in the approval of big apartment buildings, it may not have a significant impact on approvals of free-standing dwellings. They are both housing options, but the drivers are not all the same.

 

Posted Date: August 29, 2016

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