There's still a strong pipeline of work coming for Australian home builders

Getty/Ian Waldie

Beyond concerns about the household sector, the other great uncertainty for the Australian economy in the years ahead is the outlook for the residential construction sector.

After an unprecedented apartment-led building boom over the past few years, things are starting to slow down.

Building approvals are now starting to decline, led by apartments, all but cementing the view that the boom is now past its peak.

However, what comes next is the big uncertainty.

Will the boom be followed by an equally large bust, or will the residential slowdown be slow and measured in nature, remaining at what are still relatively-elevated levels?

No one quite knows the answer, but there is data available to show what might potentially happen.

The Australian Bureau of Statistics (ABS) quarterly building activity report is one source many turn to when evaluating the next move, providing a treasure trove of information on what has been built, how much it was worth, where it was located and, importantly when it comes to the outlook for the industry, where dwellings have been approved but have yet to begin construction.

The June quarter report, released today, is no exception.

Here’s what’s currently in the pipeline for housing construction across Australia’s five mainland states.

In original terms, the ABS says there were 4,164 houses approved to begin construction in New South Wales during the quarter, the highest level since the first quarter of 2008.

In Queensland there were 1,055 houses approved for construction, the highest number since the September quarter of 2012, while those in South Australia numbered 1,572, a level not seen in close to three years.

Houses awaiting construction in Western Australia are also showing signs of bottoming, while those in Victoria fell to 1,430, the lowest level in a year.

While a sharp decline, the ABS warns that the Victorian figure has a relatively large margin of error, hence should be viewed with caution.

Aside from housing, there’s also plenty of interest in the pipeline of work for apartment construction, particularly given well documented concerns about overbuilding in some parts of Southeast Queensland and in Melbourne.

However, as seen in the chart below, one state stands out in terms of what apartment supply could potentially be coming.

New South Wales.

(As a side note, these figures incorporate other residential dwellings that have been approved but have yet to start construction. The vast majority of these are for apartments.)

Even with a noticeable decline in recent quarters, at 14,157, the number of apartments in the pipeline in New South Wales are more than double second-placed Victoria at 5,733.

Elsewhere the pipeline for Queensland still remains at relatively elevated levels at 4,489 while those in South Australia have also steadied at elevated levels.

Reflecting population shifts and broader economic conditions, those in Western Australia continue to trend lower.

Combined, total house and apartment supply in the pipeline stood at 39,344 in the June quarter, down from the record peak of 43,586 seen in the same quarter a year earlier, but still an elevated level.

Of course, just because dwellings have been approved doesn’t automatically guarantee that they will be built, but it gives a fairly strong guide as to what will happen over the next few years.

In particular, the residential construction sector in New South Wales is looking better than most parts of the country, especially given apartment developments often take years to build.

“Building approvals are well off their peaks reached late last year but remain at a relatively high level,” said Kristina Clifton, economist at the Commonwealth Bank, following the release of today’s report.

“And while the value of work in the pipeline has dropped a little it is still close to record highs. This means that dwelling construction activity should stay fairly solid over at least the next year or so.”

Helping to bolster the view that the unwinding construction boom should be fairly measured in nature, recent data on population growth, building approvals and housing finance all point to strong underlining demand for housing underpinning activity levels in the period ahead.

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