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Housing approvals down 11% on prior year

Australia’s dwelling approvals continued to slide in August, falling to 212,767 separate dwellings for the year-ended August. As total approvals declined by double-digits, free-standing dwellings declined just 2.8% over the same period, to 115,855 dwellings. That increased the share of dwelling approvals held by traditional houses to 54.5% of the total. Monthly approvals were above 19,000 for the third successive month, with free-standing dwelling approvals above 10,000 for the fifth successive month.

Dwelling approvals may be declining, but they are coming off their longest and largest ever boom. So, in examining the headline data, as displayed in the chart below, we can miss some key points. Not least of these key points is that dwelling approvals are historically still quite strong.

fig 17

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

Doubtless, the year-end decline is worthy of note, but all booms must come to an end. What we might care to examine is how Australia’s housing mix is changing. For a time, as we know, the emphasis was on Four + Storey Flats  – apartments in towers in the main – but that has changed relatively quickly to more medium-density dwellings.

So, as the decadal chart below shows, while Four + Storey Flat approvals totalled 76,749 separate apartments for the year-ended September 2016, they plummeted 30.0% over the next year to total 53,730 dwellings for the year-ended September 2017. This is still a big number of approvals, and of course, the number covers everything from giant towers to the four to eight storey mid-rise apartments that are really only now coming into their own for the first time in many decades.

fig 18

The chart does not show free-standing houses, so to some extent, we can isolate the very severe fall from grace of high-rise apartments. But there is another trend worth examining. Combined, the Semi-detached One-Storey Townhouses (up 14.9% year-ended September) and Semi-detached Two or more Storey Townhouses (up 0.6% year-ended September) accounted for 35,890 separate dwellings over the last year.

They may still be behind the Four + Storey apartments, but they are growing – up 4.2% over the year – while the high-rise jobs have crashed. There are reasons apartments are the material for the modern boom and bust experience. 

They are cheaper for new entrants, appear more fungible in the market (though that does not always turn out to be the case), are more likely to be purchased by foreign investors and so on.

It can reasonably be expected that at some point – the next capital city boom would do it – there will be growth in high-rise apartment approvals. But, they are the boom and will be the bust. The mid-rise has plenty of room to grow in the inner suburbs and seems a more sustainable and flexible format.

Along with the ‘baseload’ performance of free-standing houses, mid-rise infill developments and medium density townhouses create a solid and long-term base for Australia’s residential dwellings.

We should be a little more confident about the softening of the Australian dwelling approval experience than at previous times. While there are headwinds – dwelling finance, home loans, interest rates and so on – the fundamental demand driver of an ever-growing population is likely to lead to further dwelling developments.

 

Posted Date: December 3, 2017

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