Australian residential dwelling approvals slumped 17.2% in July 2022, as total monthly approvals of 13,595 included a sharp fall in non-detached approvals. Meantime, approvals of detached houses lifted above 10,000 for the first time in four months and are gradually tracking down.
A long pipeline of activity commences with a sale of a home, after which paperwork, finance and other activities have to be completed before the dwelling is approved and appears in the official numbers. The simplest way to put the current data into context is to think that July’s approvals are actually from a little way back, in the first half of 2022.
As we can see in the first chart, monthly approvals for houses are relatively stable, but total dwelling approvals are tracking lower and appear to be preparing to nosedive, at least for a time.
If we look to the relative roles of different housing formats, we can see that total approvals are down 12.8% year-ended July, but the data after that is patchy and interesting. House approvals are down 18.4%, but that leaves them at a still whopping 123,078 approvals for the year. Interestingly, 2+ Storey Townhouses are now consistently the second largest format, although they routinely change places with the ‘boom to bust’ cycles of the 9+ Storey Apartments.
Year-ended July, 2+ Storey Townhouse approvals were up 8.8% to 26,303 dwellings and are growing their share against the 9+ Storey Apartments (down 5.7% over the same period).
We can – and in Statistics Count we must – speculate about the patterns the housing market throws up. Land prices, urban infill and rejuvenation, smaller families and other drivers are behind the continued rise of the 2+ Storey Townhouse. In the storms to come, they may offer the safest harbour for those exposed entirely to the raging winds of housing cycles.
On a similar theme, though more muted, the growth of 1.5% year-on-year in approvals of 4-8 Storey Apartments is operating to at least some of the same drivers. We ignore the messages in the trend data at our peril!
The downturn is nationwide now, as the chart below shows. Only the ACT has been shielded from the crunch (+31.2%, year-ended July), but it was slow to get started on the upswing of 2021.
Victoria’s approvals are down the least (-6.8%), with WA rushing from bust to boom and back to bust in two short years (-33.1%). That is a big and painful range with which to contend.
But wait, yes, there is more to come, and its unlikely to be steak knives.
Existing house prices are falling, and in some markets falling steeply. Many commentators suggest the bottom has not been reached yet and with the full impact of inflation and slow wages growth, there is every reason to think they are right.
It is likely high inflation is cancelling out the impact of any wages growth, but its not a happy circumstance and one that could turn quickly if the economy actually tanks.
Ultimately and historically, falling prices feed into declining demand for new house construction. As Nila Sweeney reported in the Australian Financial Review in late August, the prospect of further interest rate hikes makes views that housing prices are flattening out, more than a little premature.
The intel gets worse.
The pipeline of housing construction work is not diminishing at anything like an adequate rate. Materials and labour shortages are pushing out building times. Ingenia Communities said that the time it takes to build a dwelling has blown out from pre COVID 19 period of 12 to 16 weeks to as long as 36 weeks in some cases. If time is money, we can see reasons for a profitless boom for builders.
The counter to this is, as Mirvac CEO Susan Lloyd-Horwitz commented, low unemployment and a return to inbound foreign migrants are holding up demand. The latter point is a bit suspect because the general rule is it takes around two years for a new migrant family to be acquiring a dwelling. Perhaps that has changed, but equally, it could be true on a net-net basis.
As a result of the demand and the apparent shortage of apartments, Mirvac intends to bring 900 apartments to market this year to an east coast market it argues is increasingly undersupplied.
On the home front, those sticking with the existing dwelling or really going all-in on the newly purchased established house are renovating the future. New work might slow soon, but the general demand has plumbing supplies group Reliance Worldwide expecting solid demand from home renovators in the US and Australia to be an important buffer in any broader economic downturn.
We’ll be a bit ‘ba humbug’ on that one. We expect the renovation rate will depend on interest rates and the retention of low unemployment rates, more than anything else, but like with all these matters, we’ll see soon enough.
