New dwelling approvals reached 229,043 separate dwellings for the year-ended March 2016, up 5.9% on the prior year, but seem to have peaked in the last few months. March approvals were 0.7% lower than in February. High year-end approvals have been driven by growth in Four or more storey apartments (+16.9% YE March 2016), but at the same time, March approvals were 1.7% lower than the prior month.
At a national level, the chart below shows that the strength in the taller apartment buildings has been very strong, but that doesn’t mean there has been no growth in the rest of the sector. Year-on-year growth in free-standing dwelling approvals was an unremarkable 0.5% to the end of March 2016. But that amounts to 116,791 separate approvals, amounting to 50.9% of the total. Although it is true that the housing proportion of total dwelling approvals has been higher, the resilience of the main f housing sector must not be under-estimated.
To go straight to the dashboard and take a closer look at the data, click here.
The other dwelling type of interest in the chart is the townhouses (2+ storey semi-detached). All the attention may be on the apartment towers, but the far less risk prone, mid-rise of semi-detached dwellings saw approvals increase a very strong 31.4% for the year-ended March 2016, with approvals hitting 22,686.
Townhouses are anecdotally being built as a key (and often quality) element of the urban infill movement. As population expands and older industrial sites become available, particularly in Melbourne and Sydney, entire sites are being ‘town-housed’.
So while these dwellings are only equivalent to 32% of the total of 4 + storey dwellings, they are significant and seemingly, of growing importance. For those businesses supplying timber and wood products into construction, that’s a message that is already sinking in.
As the significant volume of total approvals translate into actual construction activity and the boom proper comes to an end, other risks are rising. With a reported 80,000 dwelling units to be completed in the next year in Sydney, Melbourne and Brisbane, and a further 125,000 due to complete in the two following years, banking risk is increasing. The utter dominance of the three most populous states is displayed in the chart below.
To go straight to the dashboard and take a closer look at the data, click here.
For the year-ended March 2016, New South Wales, Victoria and Queensland accounted for 79.2% of total dwelling approvals, up from 75.7% a year earlier.
State-by-State growth saw NSW approvals up 19.9% to 67,851 dwellings, Victoria rose 8.3% but still was the leader (just) at 67,997 approvals and Queensland was in the middle with growth of 14.5%, amounting to 48,105 dwellings.
Based on assessment of this more granular data, analysts are concerned about the risk of emerging over-supply, especially in Sydney.
If oversupply eventuates and translates into lower prices and there is a downturn in employment (from the slowing housing construction industry for example, which employs around 8% of the national population), the risks could compound reasonably quickly for some of Australia’s largest banks. That would be a worrying double-hit scenario that could impact banks and the entire economy. While the resonance would be felt most strongly in the apartments sector of the residential property market, it would doubtless flow on to the free-standing dwelling sector and the growing town-house/urban infill sectors.
