Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 3 February 2016

Building approvals trending down (from record highs)

Approvals solid in December

It was another strong month for Building Approvals in December with a seasonally adjusted 18,868 dwelling units approved, a +9.2 per cent rebound from November's abrupt drop, but a -2.5 per decline from the prior year.

Promisingly the rebound was driven by both a +5.4 per cent increase in houses and a +12.8 per cent increase in other dwellings.

Despite this, the trend still remains just about down for a ninth month on the bounce, driven by unit and apartment approvals which have trended down fairly sharply since March of last year.

Although the peak for approvals has now passed in rolling annual terms, 2015 was the biggest ever calendar year for building approvals with some 232,000 dwelling units approved, evenly split between houses and record high approvals for other dwellings.

Notably this cycle has been characterised to an unprecedented extent by "high rise" apartments of four or more storeys, which will be reflected in overt localised oversupply of this property type.

City by city

Monthly house approvals in Greater Perth have all but halved since their peak as the market gets set to absorb some of its excess stock.

Meanwhile Greater Melbourne on the other hand continues to be the runaway leader for detached house approvals, as has been the case continuously over the past last decade-and-a-half. 

It is worth noting that although Sydney has built a relatively high number of apartments over recent years this has partly been at the expense of detached housing construction, reflecting constrictive planning policies and a dearth of shovel ready greenfield land. 

December has often been a feverish month for capital city unit and apartments applications being waved through, and 2015 proved to no exception with a further 8,942 approvals rubber stamped (although this was 9 per cent lower than the prior year equivalent figure).

Unit approvals are still tracking at historically very high levels, but rolling annual totals have begun to tick down in every capital city except for Darwin.

Greater Brisbane saw 1,388 unit and apartment approvals in December, well down following a series of prodigious months since May last year, including four separate months where more than 2,000 units were approved.

The final chart below shows the extent to which the "high rise" phenomenon has permeated the three most populous states.

Although rolling annual approvals may now have have moved beyond their peak, in historical terms high rise approvals remain exceptionally high.

Traditionally this dwelling type was confined to Central Business Districts (CBDs) and locations with relaxed height restrictions on building, such as the Gold Coast.

Through this cycle a number of formerly industrial suburbs in Sydney (such as Mascot and Zetland, for example), Melbourne, and Brisbane (see Fortitude Valley, Newstead, West End, South Brisbane) have seen rezoning lead to a flood of high density approvals. 

Of course, as dicussed on this blog previously, there is no guarantee that all of these building approvals will make it through to become dwelling commencements, and many may end up never being built. 

Dwelling construction is forecast by most analysts to begin its decline in the second half of 2016, and as such will likely join resources construction as a dead weight around the neck of GDP growth.