With the release of the latest building approvals data from the Australian Bureau of Statistics this week for April 2012 we are seeing no signs of improvement for the home building sector. The lack of activity has a significant multiplier effect across the economy; not only is it those linked directly to the construction sector which suffer due to lower levels of construction but also retailers and service providers. The slowdown isn’t only being felt in new housing, the number of established houses and units being sold are also tracking below average.
Although new construction and sales of existing properties has been trending lower for many years now, Australia’s population has continued to grow. On an annual basis between the March 1994 quarter and the September 2011 quarter, Australia’s population has increased by 274,917 persons each year. This increase in population also increases the requirement for homes in which to house these new individuals. Population growth is currently 16.3% above the long-term average highlighting that despite population growth well below peak levels, it is well above average over recent times.
Looking at the annual volume of house and unit sales across Australia over the same period highlights this disconnect more specifically. Annual sales volumes peaked over the September 2003 quarter with 617,962 sales for the year. Ever since that time sales volumes have trended lower and as the previous chart shows, population growth has increased over that period. Over the period from March 1994 to March 2012 the Australian housing market has averaged 472,504 sales each year. This figure is -24% lower than the peak market activity however, it is -19.3% higher than the volume of sales over the 12 months to March 2012. Transaction volumes have been below the long-term average since September 2010.
As already mentioned it hasn’t only been the decline in sales of existing homes which has been heading in the wrong direction in recent years but also the number of approvals for new dwellings. Dwelling approvals peaked over the 12 months to September 1994 with 193,754 new homes approved for construction over the year. Over the 12 months to March 2012 144,594 new dwellings were approved for construction which was -25% lower than the historic peak but also -9.1% lower than the long-term average of 159,043 approvals each year.
If the housing market was acting efficiently and affordability factors and government interference played no part you’d anticipate that sales volumes should have been increasing over time along with building approvals as the population has continued to grow. Of course this has not been the case. A restrictive supply of residential land, the slow process of gaining approvals for new development and the various government fees and charges associated with new development which are ultimately passed on to the purchaser have all contributed to a falling rate of new construction and fewer sales transactions. Of course these aren’t the only factors, availability of credit for housing, the greater propensity for households to save rather than spend, housing affordability issues and taxes on moving such as stamp duty have also contributed to the persistent insufficient supply of new housing and a lower volume of home sales.
The most worrying factor is that population growth is already at a level well above the long term average and the more up-to-date overseas arrivals and departures data from the ABS shows that net long term arrivals are staring to increase once more which suggests population growth is set to accelerate over the coming quarters.
Of course, households are responding and we are seeing average household sizes increasing after they have trended lower for much of the last century and we are seeing children stay in the family home for longer.
In my opinion it would be good if we could see an action plan from all levels of government as to how we can tackle these issues. We see many politicians come out and make bold statements about whether they believe in population growth or not and that is an important debate however, it is unlikely that our population will not grow. What is an equally, if not more important debate, is how we are going to provide the necessary amount of housing to our population at an affordable price point (whether it be to rent or to buy) for all sectors of the community.
Housing is the responsibility of all three levels of government, with local government’s approving development proposals, state governments determining where development can take place and federal government to some degree managing population growth. Consultation and coordination across all three levels of government is imperative to effectively manage housing supply. It’s not just a housing undersupply which is apparent in Australia it is an undersupply of housing at an affordable price point and that is an issue which is going to be far more difficult to correct.
I would like to hear your feedback and what you believe can be done to fix this problem.