Australia’s residential building boom took a breather in the June quarter, according to new data released by the Australian Bureau of Statistics earlier today.
Over the quarter, detached housing commencements rose 6.9% to 29,831 in seasonally adjusted terms, the highest three-month total on record.
That surge was more than offset by sharp decline in “other residential” dwelling commencements, almost entirely apartments, which tumbled 24.4% to 23,605 during the quarter. Commencements in this category stood at a record high in the March quarter.
Combined, commencements slid 9.5% to 55,110 in the three months to June, leaving the year-on-year drop at 4.0%.
Despite the quarterly slowdown, we’re still building an unbelievable amount of residential property, a whopping 229,000 dwellings over the 2015/16 financial year.
This chart from the Commonwealth Bank puts the quarterly slowdown into perspective. It’s been overlaid with building approvals figures from the ABS, underscoring why the building boom looks like it’s got further to run yet.
“National demand for new dwellings is holding up thanks to low interest rates, relatively firm national population growth and some reasonably positive outcomes in parts of the jobs market over the past year. Queensland, Victoria and NSW are the major residential construction centres,” said Michael Workman, senior economist at CBA.
“We expect those trends to remain in place over the next few years, even with a shift to lower national residential construction. Mainly because the population growth and housing demand is expected to remain firmest in the three largest states.”
This chart, also from the CBA, shows annual dwelling starts by state and territory. Borrowing a well-worn phrase, it’s clearly a two-speed housing residential construction market.
While the CBA has revised its residential construction forecasts higher “given the relentless strength in building approvals”, Workman notes that the current construction upswing is different to previous cycles given there are similar numbers of detached houses and apartments being approved and constructed.
This, he says, suggests there’s “a clear risk of oversupply in some areas”, signalling out inner-city apartments in particular.
“The annual total is still running near record levels of 229,000. It compares well to a 20 year average of around 160,000,” he says.
“On a national basis, housing supply has been running well above demand of around 170,000 for the past few years.
“It means that there is a clear risk of oversupply in some areas, if all the new housing is used by owner-occupiers or rented out.”
He’s not the first to warn on such a scenario playing out. Based on recent form, he’s also unlikely to be the last.