Low dwelling approvals are bad news for housing supply

by Tim Lawless on November 3, 2011 in Housing supply, Research

After a brief surge in August, the number of dwellings approved for construction in September fell by 13.6% (August approvals were up by a revised 10.7%) – a result that was primarily influenced by a large fall across the ‘non-house’ category which is comprised of mostly apartments and semi-attached dwellings such as terrace homes and townhouses.

The non-house sector is generally quite volatile or ‘lumpy’ due to the affect of large scale development approvals from month to month. Non house approvals spiked upwards by 28% in August then plummeted in September by a larger 32%.

Looking at dwelling approvals across the public sector, it is clear that Government led dwelling approvals led the way for higher dwelling approvals. Public approvals spiked upwards between early 2009 and late 2010 as can be clearly seen in the graph above. At the peak, public sector approvals accounted for a record 16.1% of all dwelling approvals. The September approvals data shows public sector activity has fallen back to slightly below 2 percent of all approvals.

The overall figures point to a very weak construction sector. The total number of dwellings approved in September (on a seasonally adjusted basis) was the lowest in more than two years. That doesn’t create much hope for new home starts over the coming 6 to 12 months. The low dwelling approval figures also aren’t going to help combat the supply issues that persist, particularly in New South Wales and Queensland.

From state to state the steady decline in dwelling approvals is quite clear, as the graphs above show. The only state where dwelling approvals were higher than the ten year average (based on a rolling 12 month summation) was Victoria where land supply and dwelling approvals have been flowing much more freely compared with other states.

It is almost certain we will start to see the net overseas migration numbers start to increase when the September quarter population data is released by the ABS (on the back of a higher migration quota and increase in temporary work visa’s as announced in the Federal Budget). Whether we see a supply response in the dwelling approval figures is yet to be seen, however considering the more timely nature of the approvals data compared with demographic updates, an upswing in approvals and dwelling construction doesn’t yet seem to be on the cards.