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New home approvals continue strength – but its getting patchy

Approvals for the construction of new dwellings rose 1.2% in March, compared with February, underscoring the fact the housing market continues its long running period of stability, after the long boom. So stable in fact, that housing approvals totalling 225,393 dwellings for the year-ended March were just 0.4% lower than for the prior year.

Behind the headlines, there are interesting trends being confirmed. Some are good for sectors like house and land package developers and the forestry and wood products industry and others are good for particular states, like Victoria.

It can be seen in the chart below that monthly dwelling approvals – in aggregate and shown in the blue bars – are very seasonal, but the annual peaks of the last three years are quite consistent, and 2018 appears to be developing along similar lines.

In fact, as the green line shows, annual approvals have ceased the gradual decline into which they were meandering through to about the middle of 2017. Since then, annual approvals have increased more or less consistently. The red line, showing the number of detached or free-standing houses, is growing again, providing much of the fuel for the turn-around in total approvals. 

fig 3

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

To see the effect of the different housing formats on total approvals, we can examine the chart below. The data here is presented for the year-end, but on a quarterly basis, to smooth out some of the more volatile monthly data.

The absence of volatility allows us to see that despite the period through which approvals of 4+ Storey Flats rose sharply (shown in the light colour), and even their recent return to some growth, it is free-standing houses that provide the base of demand for Australian housing.

To contrast the two distinct formats, approvals of 4+ Storey Flats declined 6.1% for the year-ended March, falling to 63,666 approvals for the year, while approvals of free-standing houses rose 1.7% over the same period to 119,339 separate approvals. It is relevant to note that for the March Quarter, approvals of 4+ Storey Flats were up 35.9% on a Q-o-Q basis, and Free-standing House approvals were up 10.3%.

fig 4

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

The data above demonstrates there is life yet in the housing market. While there have been expectations about an approvals decline in 2018, we are currently observing the opposite, with both of the major formats providing the prospect of building activity for the next two years.

Just as the total market has its sectoral drivers, it also has its regional drivers. The chart below shows dwelling approvals by state, on a year-end basis, but again, quarterly rather than monthly, to accentuate trends.

The chart confirms what has always been true. Population is the primary driver of dwelling approvals and construction. Thus, the chart shows that the most populous states experience the largest growth in dwelling approvals. But, the chart also shows that growth is not distributed symmetrically across the states.

To the year-ended March, total dwelling approvals in Victoria grew a solid 6.9% compared to the prior year, reaching 72,883 dwellings, while approvals in more populous New South Wales declined 5.7% to 70,743 dwellings.

fig 5

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

Approvals in Queensland were also down over the same period, falling by 2.6% to 43,251 dwellings, while those in South Australia were up 7.9% and in Tasmania, by 24.4%. Western Australia recorded a fall of 10.3%, the ACT a 4.3% decline and the Northern Territory and fall of 34.4%.

It is not population size alone that drives housing markets, of course. The data demonstrates to us that the rate of population growth (Victoria is fastest growing on that front), land release strategies (a perennial challenge in New South Wales), softening minerals resource sectors (impacting WA and the Northern Territory) and some pent up demand and improved attractiveness as a retirement destination (Tasmania), all play their part in the national distribution of dwelling growth.

Boiled down, we can observe that with its diversified regional economies and society, Australia is increasingly well placed to substitute housing demand growth from one region to the other, particularly where the population continues to grow and economic conditions continue to encourage those who seek the sometimes elusive dream of personal security that is represented by home ownership.

Posted Date: May 24, 2018

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