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Housing Approvals – Still searching for the positives

Australia’s dwelling approvals data continues to underperform demand, with very little positive information. On an annualised basis, detached house approvals for the year-ending January 2024 were 100,737, down 11.6% on the previous year. Total dwellings for the year-ending January 2024 were 161,742 down -14.9% over the same period.

In analysing data, the preference is to provide context by looking at both the positives and the negatives. This month’s housing approvals is challenging as there is mainly negatives which leaves us still searching for the positives.

We’ll see how we go.

On a monthly basis, the data is more volatile than the annual data, with detached houses approved in January 2024 totalling 7,565 down 9.6% on December 2023. Total dwelling approvals were 12,850 down a more moderate 1.0%. To put that in context that is the worst monthly result since June 2012, when house approvals were as low as 7,411.

Examining the States, the year-end percentage change was lowest in South Australia at -9.8%, compared to a very steep change in the ACT where a decline of 25.3% for total dwelling approvals was experienced.

The states and territories are operating to sets of different parameters. Some have a little more demand because of migration flows or project work, some have insufficient land being released (hello NSW!) and others are battling for labour because of infrastructure projects (greetings Victoria). However, all are struggling with one big constraint: confidence!

Whether from interest rate uncertainty, concerns about a less trustworthy building supply chain, risks around the general economic weakness and security of employment or whatever else, there is insufficient confidence in the Australian dwelling market. That needs to change before an improvement can occur. When you back this into major affordability challenges we end up with the level of approvals currently being experienced.

Significantly, as alluded to above, the biggest markets of NSW and Victoria were next in line behind the ACT, in order of year-end decline, at 15.7% and 17.8% respectively.

If we drill down into the ACT, a mixed picture emerges.

Modest gains in Semi-detached single storey (up 18.2%), Flats 3 storey (up 16.4%) and Flats 9 or more storeys (up 16.4%) were offset by big reductions in Houses (down 26.8%), Semi-detached two+ storey (down 64.1%) and Flats 4-8 storey (down 61.2%).

The ACT is a slightly different market to the rest of Australia. One evidentiary point for this is the extent to which Flats of 4-8 Storey lead Townhouses of 2+ Storeys. That uncommon experience – a reflection in part of the fly-in, fly-out and ‘here for work’ aspect of the national capital – may also be guidance for the future of Australian dwellings. The ACT may be ‘different’, but is it leading or lagging? You can decide.

Where to from here? Pockets of activity appear to be emerging. Tarun Gupta, Stockland CEO, was reported in the Australian Financial Review saying:

“…home buyers are returning to the market as expectations grow that the current cycle of interest rate increases has peaked, pushing up new sales inquiries by 20%”.

Gupta added:

“…even as settlement volumes fell … new residential sales rose to 2,072 lots compared with 1804 lots a year earlier as consumers grew more confident about the outlook for interest rates”.

Supporting this view, Maree Kilroy, a Senior Economist at Oxford Economics was quoted by the Australian Financial Review saying

“Some encouraging leads are emerging. Development enquiries, land sales and construction finance leads suggest a turning point in the coming months, especially houses.”

This is a matter of interest across the building supply chain, with those in the forest and wood products sector – especially frame and truss fabricators – keenly interested in the trends emerging from the volume home builders. Recent intelligence includes reports of increased foot traffic through display homes and an increase in quoting opportunities in February and early March.

The publicly listed home builder Tamawood expects sales to pick up first for more affordable housing. Robert Lynch, Tamawood’s Executive Chairman commented to the Australian Financial Review:

“…that there has been a shift in the market where that middle market which was very popular – a lot of people just can’t afford to get into that. People who previously might have been buying a large two-storey 40 squares house will buy something like a single storey four bedroom house instead…”

Regardless of how you interpret the above the underlying fact is that the federal government’s plans to build 1.2 million homes in five years looks very difficult given the current level of approvals (161,742) would deliver 808,710 dwellings over that period.

As we continue to discuss, in any event, the approvals are one thing, but the simple fact is the supply chain does not have capacity to lift its rate of dwelling production by fifty percent overnight, or even, over a year.

Posted Date: March 16, 2024

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