Australian building approvals are on a scintillating tear. In March the ABS reported approvals rose 2.8% in seasonally-adjusted terms, taking the annual increase to an impressive 23.6%.
While the headline increase reflects strength, the composition of the growth is narrow, with large, multi-dwelling unit approvals making up the vast majority of the acceleration seen in the past year.
As the chart below from ANZ shows, approvals for unit complexes containing four stories or more has gone parabolic. Over the last year approvals for this type of development have soared, masking limited or no acceleration in approvals for houses, smaller unit developments and townhouses over the same time period.
The chart is both as breathtaking as it is worrying. Private sector dwelling approvals excluding houses jumped 59.2% over the past year. Over the same period private sector house approvals rose by a paltry 1.6%. It’s a massive divergence and shows that not all sectors of residential construction are booming at present.
This, as suggested by my colleague Greg Mckenna following the building approvals release, raises the risk of oversupply in these types of developments as approvals turn to completions in the months and years ahead.