Annual starts for new houses fell below 100,000 per annum for the first time in eleven years, over the year-ended December 2023. With approvals at their lowest level since March 2013, it is not surprising that housing commencements have fallen off a cliff, totalling 99,708 over the last year, their lowest level since December 2013.
The housing commencements data provides little good news, but there is a glimmer, in terms of the pipeline of construction work. In the December quarter, the number of houses completed was again greater than the number commenced. The result can be seen in the chart below, which shows houses under construction (in the pipeline) deteriorating 7.9% compared with the prior quarter, to total 89,490. That is still way above the preferred 50,000 to 55,000, but at least the backlog is starting to clear.
The value of work in the pipeline inched up slightly in the December quarter to $27.02 billion. That was 1.6% higher than for the previous quarter. It is important to understand what the ‘value’ data tells us here. It is defined as ‘work yet to be done’, which means houses under construction plus those approved but not yet commenced.
In part, this is important because it represents the number of dwellings still in the pipeline and the gap between approval times and actual commencements. Thus, even as the pipeline diminishes, there can be a rise in the value of work still to be done because of the long delays in going from approvals to commencement.
One way to over think this would be to consider the pipeline of dwellings under construction commencing with a bottle-neck of work yet to be started!
The supply chain knows there are too many delays in getting dwellings built, and increasingly, it is feeling the pain.
In the Australian Financial Review, John Kehoe wrote in March:
“The constraints on materials and workers have slowed the production of new homes and are prolonging a boom that for many builders is profitless, as they find themselves crunched by rising costs and fixed-price contracts they have little scope to vary.”
It may be that housing starts are slow, but just now, that might be a good thing. Getting the current work done before calling on the new work might be exactly what the dwelling construction industry needs right now. Once that pipeline is worked through, the builders and their supply chain will really need to get their skates on.
