2021 was a remarkable year for the Australian housing market. Total dwelling approvals lifted to 226,902 units, below the peak of 230,936 units year-ended June 2018. However, approvals of free-standing houses in 2021 (149,287) were nearly 18% higher than mid-2018. That is a huge difference!
Little wonder the housing supply chain has been under sustained pressure, and no surprise it has faltered periodically amidst historic high demand that was introduced at a never before experienced pace!
The chart here shows the different approval trajectories for all dwellings (green) and houses (red). It also shows – and really this is the remarkable point – the incredibly steep lift in monthly approvals of houses (the blue bars). It may be that monthly approvals had begun to come back to trend by December 2021, but not before the pipeline of work had grown to record levels.
As we have discussed previously, the potent mix of pent-up demand, cheap interest rates and an overly long and perhaps too generous stimulus program was – at least in hindsight – going to deliver a predictable spike in approvals.
What has perhaps been a little surprising is that the wave of approvals really only began to subside in 2H21. Annualised house approvals, as we can see below, actually rose between June and December 2021!
We can definitely call this a wave of work, but for many in the supply chain – especially those bereft of materials and labour – it has felt more like a tsunami. Not waving, drowning, some might say.
The data table makes plain that the reason 2021 was different (and conditions still are different) to 2018 is the explosion in houses. The counter-factual to that is therefore the decline in approvals of 4+ Storey Flats. Annualised in mid-2018, they accounted for a combined 66,149 approvals. That was a record. At the end of 2021, they accounted for 40,111 approvals.
The fall of 26,000 4+ Storey Flat approvals is almost exactly the same as the increase in free-standing houses!
We may like to romanticise this as a choice for houses over apartments, for the ‘burbs’ over the ‘hood’ and so on, but it is more complex than that. Land releases, capital availability, cyclicality for apartments, age profiles and so on, all matter in the mix of housing approvals by type, over time.
One way we can examine the differences is to look at the varied experiences across the states.
We can observe in this annualised comparison between the peak of approvals in mid-2018 and 2021, that the contributions from the states have changed significantly.
Western Australia was struggling post the mining boom, but in the last year has bounced back strongly. Approvals in 2021 totalled 25,471 compared to June 2018’s 18,375. The increase of 38.6% has been the most substantial across that period. Only Tasmania came close, with a lift of 36.6%.
South Australia’s performance saw approvals lift 16.4% and over the two peaks, the only other positive state was Queensland, where approvals lifted a modest 1.1% from mid-2018 compared to the end of 2021.
However, over the same period, NSW experienced significant decline. From June 2018’s approvals of 72,757, NSW approvals fell 13.8% to 62,735 by the end of December 2021.
Though more modest, Victoria also declined, but down from a high of 75,834 in June 2018 to 71,013 at the end of 2021, the decline was 6.4%.
In the light of that data, it could best be argued that ‘pent-up demand’ was always more likely to reside at the edges of the national economy and the less populous states. But, the extent of the trough after the post GFC mineral resources boom should not be under-estimated as a driver for housing approvals in WA, SA and Queensland at least.
This does not constitute and is not based on modelling, but we would do well to consider future housing market movements being in some part related to economic conditions that built up (or broke down) demand previously. In other words, the national housing cycle is actually a function of regional housing cycles, just as it is of individual decision making at the household level.
