Approvals Trend Down As Oversupply Hits

Posted on 11/01/2017  
Approvals Trend Down As Oversupply Hits

The reality that oversupply, not shortage, is the major issue in the residential building industry is reflected in the latest figures on building approvals.

There was a rise in approvals in November, compared to October, but the long-term trend indicates that residential building is winding down. In particular, there is a pattern of falling approvals in the two biggest states, as developers recognise that some markets are headed into oversupply.

Australian Bureau of Statistics figures show that approvals for the construction of new dwellings rose 7.0% in November. However, over the 12 months to November building approvals were down 4.8% nationally.

In the month of November, approvals for private sector houses rose 0.2% and the “other dwellings” category (apartments and townhouses) was up 18.5%.

Matthew Pollock, Master Builders Australia's National Manager – Housing, says the November uptick is welcome, but the fall in dwelling approvals in NSW and Victoria is a growing concern for builders.

“In trend terms, dwelling approvals fell in NSW (down 4.3%) and Victoria (down 2.5%),” Pollock says. “This adds to five straight months of falling dwelling approvals in NSW and six straight months of falling approvals in Victoria.”

Pollock claims this means Sydney and Melbourne will fail to keep up with “underlying demand” and that this will “push up house prices and put further pressure on future housing affordability”.

But this is the loud voice of vested interest - and part of a long campaign to convince governments that housing is under-supplied and incentives are needed for developers and builders.

The reality is that both Sydney and Melbourne are building too many new apartments and the growing recognition of this by developers and builders has led to the decline in building approvals in those cities.

Housing Industry Association senior economist Shane Garrett notes that 2016 was a record year for new dwelling commencements in Australia. He says this will ensure the volume of residential building activity remains elevated throughout 2017.

But he expects new dwelling starts will decline over the next 12 months, with this likely to be felt by the industry towards the end of this year.

RBC Capital Markets analyst Andrew Scott says the last three months of building approvals data seem to reaffirm the view that Australian housing starts peaked in 2016, which was bad for companies dependent on the construction boom.

Hotspotting believes that, after two years of elevated dwelling construction levels, a decline in activity is both inevitable and desirable. Much of impetus in residential construction has come from the apartment sector and many major markets are oversupplied or heading towards a surplus.


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