Dwelling Approvals

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<p>GUEST OBSERVER</p>
<p>Fishermans Bend is Australia’s largest urban renewal zone and has Melbourne’s biggest speculative apartment supply pipeline.</p>
<p>17,873 residential dwellings have been proposed in Fishermans Bend since January 2014, yet only one project, Gravity Tower has proceeded. More than 6,500 dwellings currently hold planning approval while a further 23 projects totaling 10,800 dwellings are still awaiting a decision.</p>
<p>So what’s the problem?</p>
<p>The 450 hectares of land located adjacent to Melbourne’s existing CBD is prime for residential living. It presents the growing city an opportunity to expand whilst alleviating current housing affordability concerns. The City of Melbourne is forecast to grow by 100,000 new residents per year and is earmarked as Australia’s largest city by 2051, overtaking Sydney.  Further, social trends to live in close proximity to Melbourne’s CBD have added existing pressure on dwelling supply across the inner ring.</p>
<p>Fishermans Bend was rezoned from an industrial use in 2012. In 2014 the existing Fishermans Bend Strategic Framework Plan was released. But the plan has caused large uncertainty over the precinct’s future livability, which has ultimately stifled development. Vague transport and infrastructure plans specifically have undermined confidence. As a result land owners have postponed construction and flipping approved development sites has become a common practice.</p>
<p>The newly elected Victorian Minister for Planning, the Hon Richard Wynne, is to reboot the plans with the intention to create a clear vision for the future Fishermans Bend community. Appointing the <em>Fishermans Bend Advisory Committee</em> (FBAC) in July 2015 was his first step.  Whilst the plans are not set to be finalised until the end of 2016 multiple amendments have already been made:</p>
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<span>Land coverage increased</span>: An additional 250 hectare zone has been added to the Fishermans Bend precinct; labelled as the employment precinct.</li>
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<span>Neighbourhood planning</span>: Individual localised structure plans will be devised for the four neighbourhood precincts of Wirraway, Sandridge, Lormier and Montague, in addition to the overarching plan.</li>
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<span>Interim mandatory height limits</span>: previously discretionary height controls were made mandatory in April 2015.</li>
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<span>Proposed Transport infrastructure</span>: The 2014 infrastructure plans for two metro stations and a tram extension from the western end of Collins Street across the Yarra River were never finalised. A new integrated transport plan will be developed.</li>
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<span>Alternative use of the Port of Melbourne</span>: In 2015 the Victorian State government leased the Port of Melbourne on a further 50 year term putting redevelopment plans on hold.</li>
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<span>Public third party engagement</span>: A draft Communications and Engagement Plan was released in September 2015 putting greater emphasis on community and stakeholder engagement.</li>
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<p>The sheer magnitude of potential development activity is a major challenge. Docklands, Melbourne’s most recent urban regeneration precinct is 20 years into its urban renewal and has witnessed a mere 5,300 apartments developed in this timeframe.</p>
<p>A multitude of factors will still need to be overcome by the refreshed plans to ensure Fishermans Bend emerges as a complementary mini city to the world’s most livable city, MELBOURNE.</p>
<p><a href="/images/2016/02/22/Picture2_10Feb2016.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/02/22/Picture2_10Feb2016.jpg" alt=""></p>
<p><em>Annabelle Atkins is Research Analyst for JLL in Australia and can be contacted <a href="https://www.jllapsites.com/research/author/annabelle-atkins/" target="_blank">here</a>.</em></p>
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Melbourne’s hot spot for future apartment supply: Annabelle Atkins

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<p>Dwelling approvals outstripped expectations again in August, with a small 1.8 percent pull back coming well above the consensus expectation of a more material 6 percent decline and a slight upward revision to July's big jump.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.56.55%20PM.jpg">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.56.55%20PM.jpg" alt=""><br><br>The number of approvals in July was the second highest month on record. Even with a dip, the August reading is still the fourth highest month on record with approvals now up 10.1 percent/yr.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.00%20PM.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.00%20PM.jpg" alt=""><br>Expectations for a pull back centred on high rise approvals. This segment saw a spectacular 39.8 percent jump in July that was expected to largely reverse in August. Approvals instead held up much better than expected with our estimates pointing to about a 10 percent drop in seasonally adjusted terms in the month. This still leaves high rise approvals 25 percent above their June level.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.06%20PM.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.06%20PM.jpg" alt=""></p>
<p>The rest of the detail showed mixed moves. The small ‘low-mid rise’ segment saw a solid 7.8 percent gain in the month but the larger and more stable detached house approvals segment recorded a 1.3 percent dip. Combined, approvals ex high rise were up slightly, about 1.2 percent/mth but down 4.1 percent/yr. To the extent that this measure is more reflective of underlying conditions it is pointing to a modest trend decline running at about 1-1.5 percent a month.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.25%20PM.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.25%20PM.jpg" alt=""><br>By state, approvals dipped 2.3 percent in NSW but were up slightly in Vic and Qld with big monthly declines coming in WA and SA. Notably, within the NSW estimates ‘unit’ approvals were still the second highest monthly level on record.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.37%20PM.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.37%20PM.jpg" alt=""></p>
<p>The value of renovation approvals also softened in August, down 0.9%mth, but up slightly on a year ago (+1.2%). Both moves are fairly small for what is typically a much more volatile monthly series.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.43%20PM.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.43%20PM.jpg" alt=""></p>
<p>The value of non residential building approvals recorded a large 24.3 percent fall in August to be down 12.9 percent/yr. Monthly reads have been extremely choppy over the last year but approvals appear to be tracking and underlying downtrend. Falls in public sector work, private accommodation, and private sector education, health and office approvals drove the August decline.</p>
<p><a href="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.49%20PM.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/10/04/Screen%20Shot%202016-10-04%20at%204.57.49%20PM.jpg" alt=""></p>
<p><br>Overall, the continued high level of dwelling approvals points to a dwelling construction upturn holding up stronger for longer. Both tightening lending conditions and a surge in new apartment supply have had little or no impact to date but are expected to rein in 'high rise' approvals over the next year. But even allowing for a potentially sharp reversal lower in coming months, the pipeline of dwellings under construction is set to continue expanding strongly throughout the rest of 2016 and is likely to continue rising in the first half of 2017.</p>
<p><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></p>
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High rise boom continues: Westpac's Matthew Hassan

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<p>GUEST OBSERVER</p>
<p>Dwelling approvals came in weaker than expected in Aug, with a fall in units dragging total approvals down 6.9% vs expectations of a 2% dip.</p>
<p>That said, the decline comes off a higher base with the Jul gain revised up from +4.2% to +7.9%. The net result is that the level of approvals in Aug is only 1% lower than the consensus forecast implied off the old base.</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%208.57.28%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%208.57.28%20AM.png" alt=""></p>
<p>It's becoming an all too familiar refrain for monthly housing data, but volatility continues to cast major doubts over underlying trends. Some sort of slowdown is underway with approvals passing a clear peak back in Mar. The extent of the slowdown is proving difficult to pinpoint though.</p>
<p>Current trend figures show declines running at a 5–10% annualised pace but only a month or two ago the decline appeared to be running more in the 10-15% range. The monthly volatility is such that this trend pace could easily move again once another month's data is incorporated.</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%208.58.35%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%208.58.35%20AM.png" alt=""></p>
<p>The detail shows the Aug decline was concentrated in ‘unit’ approvals which were down 11.4% following a 14.6% surge in Jul. Our estimates indicate that, within this segment, 'high rise' approvals have driven all of the Jul-Aug variation with the smaller 'low rise' sub-segment showing a more consistent downtrend throughout.</p>
<p>Private sector houses posted a surprisingly strong 4.9% gain in Aug, a relatively big move for what is usually a more stable segment. Note that private sector houses held flat throughout the most recent surge in approvals (since late 2014) which has entirely driven by units.</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.00.25%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.00.25%20AM.png" alt=""></p>
<p>The state breakdown shows the Jul-Aug volatility centred on NSW where unit approvals spiked 98% in Jul, reversing 66% in Aug to be back below their Jun level.</p>
<p>Three month averages smooth the state level volatility somewhat. For 'high-rise' they show continued strength in NSW but signs of a fairly sharp downturn coming through in Vic (we have noted in previous bulletins that this is likely being accentuated by a pull forward in approvals associated with the new Vic state government levy introduced in July).</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.01.59%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.01.59%20AM.png" alt=""></p>
<p>For non-high rise, the state figures suggest strengthening approvals in NSW vs a moderation in Vic, flat-lining approvals in Qld and declines in WA.</p>
<p>The value of renovation approvals pulled back sharply in Aug, down 7.9%mth, with the 3mth rolling average growth rate slowing abruptly from 9.3% in Jun to –1.7% in Aug.</p>
<p>The value of non residential building approvals also fell 10% in Aug although that followed a similar-sized gain in Jul and is well within the range of volatility for this segment. Approvals are still on a reasonable rising trend.</p>
<p><a href="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.03.24%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/01/12/Screen%20Shot%202016-01-12%20at%209.03.24%20AM.png" alt=""></p>
<p>Overall, the Aug detail is a little less downbeat than the surprisingly weak headline number would suggest. The main takeaway though is that a downturn of some sort is underway, the extent of which remains highly uncertain.</p>
<p><span style="line-height: 1.3em;"><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em> </span></p>
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Watch for a lift in the 'drop-out' rate between unit approvals and construction: Westpac's Matthew Hassan

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<p>GUEST OBSERVER</p>
<p>Dwelling approvals outstripped expectations again in August, with a small 1.8 percent pull back from a big spike in July (+12 percent revised up slightly from +11.3 percent).</p>
<p>The consensus forecast was for a more material 6 percent fall. The July update was the second highest level of approvals on record. The August pull back still leaves approvals at the fourth highest level on record.</p>
<p>Expectations centred on high rise approvals which drove the July gain and which tend to be volatile due to large projects. This segment instead held up better than expected with our estimates pointing to about a 10 percent drop in seasonally adjusted terms that still left high rise approvals about 25 percent above their June level.</p>
<p>The rest of the detail showed a decent rise in ‘low-mid rise’ approvals, we estimate up about 7-8 percent in the month with the more stable detached house approvals segment down 1.3 percent/mth. Combine approvals ex high rise were up slightly, we estimate up 1.2 percent/mth. To the extent that this measure is more reflective of underlying trends it is pointing to a modest decline running at about 1-1.5 percent a month.</p>
<p>By state, approvals dipped 2.3 percent in NSW but were up slightly in Vic and Qld with big monthly declines coming in WA and SA. Notably, within the NSW estimates ‘unit’ approvals were still the second highest monthly level on record.</p>
<p>The value of renovation approvals also softened in Aug, down 0.9 percent. The value of non res building approvals recorded a bigger decline down 24 percent/mth and 13 percent/yr.</p>
<p><br>Overall, the continued high level of approvals points to a dwelling construction holding up stronger for longer although a softening is still expected to come through in coming months.</p>
<p><span>Details</span></p>
<p>Private houses –1.3%mth, –6.5%yr</p>
<p>Private 'units' –3.6%mth, 26.3%yr</p>
<p>NSW –2.3%mth, 37%yr</p>
<p>Vic 1.8%mth, 14.7%yr</p>
<p>Qld 0.6%mth, 13.5%yr</p>
<p>WA –14.3%mth, –36.5%yr</p>
<p>SA –10.6%mth, –22.6%yr</p>
<p>Alteration &amp; additions^ –0.9%mth, 1.2%yr</p>
<p>Non-residential^ –24.3%mth, –12.9%yr<br>^ value</p>
<p><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></p>
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Australian dwelling approvals August 2016: Westpac's Matthew Hassan

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<p>GUEST OBSERVER</p>
<p>Dwelling approvals posted a stronger than expected 8.3 percent rise in Feb.</p>
<p>Westpac and the consensus view had been for a modest 1-1.5 percent decline.</p>
<p>Approvals are still 13.5 percent below their Aug peak in trend terms.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.12.31%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.12.31%20AM.png" alt=""></p>
<p>Notably the latest monthly gain looks to be more than just high rise related volatility with all segments recording robust increases.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.13.41%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.13.41%20AM.png" alt=""></p>
<p>Private detached house approvals rose 5.3 percent/mth. Our estimates suggest high rise approvals were up about 15 percent/mth in seasonally adjusted terms with 'low rise' approvals up about 10 percent/mth.</p>
<p>The high rise/non high rise mix is of particular interest at the moment as it shapes the extent to which the slowdown impacts construction activity in 2017 vs 2018 and beyond.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.14.35%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.14.35%20AM.png" alt=""></p>
<p>The rise in non high rise approvals pares back some of the near term weakness that was showing through in approvals over recent months.</p>
<p>The state breakdown shows particularly strong monthly gains in NSW (+20 percent) and Qld (+34 percent). Both states saw a more pronounced weakening in approvals through the second half of last year. Other states all saw significant declines.</p>
<p>The value of renovation approvals rose 14 percent, a partial rebound from a 19 percent fall in Jan. Approvals remain on a solid uptrend led by strong gains in NSW and Vic with activity flat/weakening elsewhere.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.15.29%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/04/4/Screen%20Shot%202017-04-04%20at%209.15.29%20AM.png" alt=""></p>
<p>The value of non res building approvals jumped 35 percent but are extremely volatile month to month. Trend-wise, approvals are still tracking lower at a modest annual pace.</p>
<p>Overall, the strong rise in dwelling approvals in NSW and Qld this month casts some doubt over the Feb gain, particularly given the more pronounced weakness in these states in preceding months.</p>
<p>Approvals may be being buffetted by 'non market' factors, e.g. council mergers may have impacted approval processing in NSW while recent changes to state government policies targetting construction may have influenced activity in Qld. </p>
<p class="p1"><span class="s1"><em>Matthew Hassan is senior economist with </em><a href="https://www.westpac.com.au/"><span class="s2"><em>Westpac</em></span></a><em>.</em></span></p>
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Dwelling approvals post stronger than expected rise in Feb: Matthew Hassan

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<p><img src="https://counter.theconversation.edu.au/content/73514/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1"></p>
<p>GUEST OBSERVER</p>
<p>Politicians and the powerful property lobby continue to argue that building more houses is the solution to Australia’s chronic affordability problems. </p>
<p>But a “supply-side solution” – as propounded by NSW Premier Gladys Berejiklian as well as Prime Minister Malcolm Turnbull and Treasurer Scott Morrison – will only work if affordability is just a supply-side problem. Evidence suggests this is not the case. In fact, our analysis shows that Australia is almost a world leader in rates of new housing production. </p>
<h2>How Australia compares</h2>
<p>One way to assess Australia’s supply performance is to compare it with other developed countries. The graph below compares the number of dwelling completions per 1,000 persons across 13 countries, for the years 2010 and 2015. On this measure, Australia’s new housing production is second only to South Korea’s. </p>
<p>Australia delivers two-thirds more homes per 1,000 persons than the US and four times more than the UK. When we measure supply as a proportion of existing stock, Australia again ranks second with a rate double that of the US. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/08/image-20170307-14934-1kxhows.PNG" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/03/08/image-20170307-14934-1kxhows.PNG" alt=""></p>
<p><span class="attribution"><span class="source">OECD questionnaire on affordable and social housing; World Bank population growth and total population figures</span>, <span class="license">Author provided</span></span></p>
<p>A slightly different approach takes into account population growth. This involves measuring dwelling completions per head of new population. Here Australia’s performance sits in the middle of the pack. </p>
<p>We are delivering just over 0.5 dwellings per head of new population compared to more than 2 in South Korea. This rate is, however, still ahead of the UK and comparable to the US. Again, that suggests inadequate supply is not the major cause of the affordability crisis.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/08/image-20170307-14973-17a1ooc.PNG" target="_blank"> Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/03/08/image-20170307-14973-17a1ooc.PNG" alt=""></p>
<p><span class="attribution"><span class="source">OECD questionnaire on affordable and social housing, World Bank population growth and total population figures</span>, <span class="license">Author provided</span></span></p>
<h2>State comparisons of supply</h2>
<p>At a national level, supply seems pretty healthy. But there are significant state variations. This might, on the surface, be used to explain different patterns of price growth.</p>
<p>The table below shows that New South Wales has produced fewer new homes per 1,000 people than Australia overall over a 30-year period. The difference was particularly marked between 2005 and 2015. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/03/08/image-20170307-14932-1egbg6z.PNG" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/03/08/image-20170307-14932-1egbg6z.PNG" alt=""></p>
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<p><span class="caption">State comparisons of new housing supply.</span> <span class="attribution"><span class="source">ABS building activity Australia cat. 8152; ABS Australian Demographic statistics Cat 3101</span>, <span class="license">Author provided</span></span></p>
<p>However, higher supply output in the other states has certainly not created affordable markets. In NSW, the last two years have delivered significant supply growth yet prices have continued to rise just as fast. So why do prices rise with supply growth? </p>
<h2>Demand drives supply</h2>
<p>In a market-driven housing system, price stimulates new housing supply. In Australia new supply has responded relatively quickly to price rises (despite the continuous rhetoric from the property lobby about planning). </p>
<p>But there is always some lag due to the time it takes to secure necessary approvals and physically construct property. There is no such lag with demand meaning there is often a sustained mismatch between the two – positive or negative. </p>
<p>In a rising market, development becomes more profitable and land values rise, meaning greater returns for all concerned. Potential future capital gains stimulate investment activity. Price rises also allow owner-occupiers to trade up as the equity in their own dwelling increases. </p>
<p>In such circumstances, increased levels of housing supply do little to satiate demand created by population growth and the appetite of investors. </p>
<p>Western Australia has had an incredible level of housing completions over the last 30 years, as shown in the table, with 2014 and 2015 particularly strong. In the last 12 months, dwelling commencements have collapsed by more than 25%. Prices have been falling slowly for almost three years driven by the contraction in the resources sector and strong levels of new supply.</p>
<p>However, even under these conditions, WA housing affordability shows little sign of improving for those on low incomes. The market still cannot deliver housing for those at the bottom end of the market.</p>
<p>The housing market is simply unable to deliver housing that is affordable to those on lower (and, increasingly, moderate) incomes because there is a minimum cost of delivering housing that meets minimum community standards. This is made up of the land price, the physical construction costs of the dwelling, and the profit required for taking on the development risk.</p>
<p>This is why market intervention and subsidy are essential to deliver options for those on low incomes.</p>
<h2>Targeted interventions are needed</h2>
<p>Two strategies are needed to deliver affordable housing to the lower end of the market.</p>
<p>First, demand-side measures need to be better targeted to stimulate investment in new supply, particularly affordable rental housing, rather than simply fuelling demand.</p>
<p>Second, any government serious about improving affordability needs to put more resources into the community housing sector. This could be funded in two ways: partly by taxing the windfall gains from development and partly by reallocating existing demand-side subsidies. </p>
<p>The community housing sector can operate counter-cyclically. This means it can maintain housing supply even when house prices stagnate or fall – which is good for the economy.</p>
<p>A bigger community housing sector is the supply solution Australia really needs. The bond aggregator model currently working its way through consultation offers some hope of delivering this expansion.</p>
<p>Targeting supply to deliver housing for those on low incomes and reining in demand-side incentives that fuel prices will make some difference to affordability for those most affected. </p>
<p>There was some encouragement over the weekend. Scott Morrison discussed the rental market and social housing as part of the affordability solution. This was a welcome change from trotting out the tired old supply arguments and threatening to fuel demand through more home ownership incentives. </p>
<p>Let’s hope the treasurer follows through and delivers some much-needed “whole of housing market” thinking in the May budget.</p>
<p><em><span class="fn author-name"><a href="https://theconversation.com/profiles/steven-rowley-201914" target="_blank">Steven Rowley</a> is d</span>irector, Australian Housing and Urban Research Institute, Curtin Research Centre, Curtin University.</em></p>
<p><em><span class="fn author-name"><a href="https://theconversation.com/profiles/nicole-gurran-759" target="_blank">Nicole Gurran</a> is p</span>rofessor - Urban and Regional Planning, University of Sydney.</em></p>
<p><em><a href="https://theconversation.com/profiles/peter-phibbs-27130" target="_blank">Peter Phibbs </a>is chair of Urban Planning and Policy, University of Sydney.</em></p>
<p><em>All are authors for The Conversation.</em></p>
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Australia’s almost a world leader in home building, so that isn’t a fix for affordability

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<p>GUEST OBSERVER </p>
<p>Dwelling approvals posted a slight 1.2 percent decline in Dec in line with expectations (Westpac –1 percent, market –1.5 percent).</p>
<p>The Dec dip follows a 7.5 percent gain in Nov that was a partial rebound from a sharp 23 percent drop over the previous 3mths. </p>
<p>That earlier move marked the first definitive sign that Australia's high-rise driven building boom was starting to turn down.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.17.36%20AM.png" target="_blank">Click to enlarge </a></p>
<p><img src="https://www.urban.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.17.36%20AM.png" alt=""></p>
<p>The Nov bounce and Dec stablisation scales back the pace of the decline but leaves the downtrend intact – trend approvals are now down 13%yr.</p>
<p>The Dec mix showed further weakness in private sector houses (–1.6%mth to be down –9.6 percent/yr) with ‘units’ up slightly (+0.9 percent/mth but still down –13 percent/yr). Our estimates suggest high rise approvals were up about 4%mth with 'low rise' broadly stable.</p>
<p>High rise is still at the epicentre of the slowdown although the softer picture on non high rise approvals is notable particularly for construction activity in 2017 (the longer time frame on projects means the high rise impact falls more into 2018).</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.19.49%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.19.49%20AM.png" alt=""></p>
<p>The state detail suggests the high rise downturn is more abrupt for NSW and Qld with Vic approvals in this segment more volatile around a milder downtrend. For ‘non high rise’ approvals the weakness is much more pronounced in Qld and WA with approvals flattening out in NSW and Vic rather than trending materially lower.</p>
<p>Given the aforementioned timing differences, that suggests the path for construction activity will be very different across states with near term weakness concentrated in the mining states, and the high rise slowdown having more of an impact on NSW and Qld in 2018.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.20.46%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.20.46%20AM.png" alt=""></p>
<p>The value of renovation approvals surged 15.2 percent in Dec to be up 12.3 percent/yr. The renewed uptrend and detail suggests there was a 'pause' in activity in NSW and Vic, possibly relating to election uncertainty.</p>
<p>The value of non res building approvals edged up 0.7 percent but were down 6.7%yr. Extreme lumpiness makes it difficult to be sure of the underlying trend although the value of approvals for Q4 as a whole was down across most segments with a notably sharp fall in NSW.</p>
<p>Overall, aggregate approvals continue to track in line with our expectation of a significant high rise driven slowdown. The mix has been a little weaker for non-high rise approvals though suggesting construction activity may be a touch softer in the second half of 2017.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.21.42%20AM.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/02/03/Screen%20Shot%202017-02-03%20at%208.21.42%20AM.png" alt=""></p>
<p>As we highlighted in a several pieces last year, the long lags on high rise projects mean the downturn in this segment will not impact construction activity until well into 2018 with work done still relatively well supported in 2017. We will be expanding on this research in coming months to provide a clearer view of the likely path for construction activity and completions across the major states. </p>
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<p><span><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></span></p>
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December dwelling approvals decline: Westpac's Matthew Hassan

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<p>In some markets and circumstances, declining dwelling commencements can be a fair indicator that prices may be about to follow suit.</p>
<p>I don't want to generalise too much here, because there are of course different sub-markets and sectors.</p>
<p>Nevertheless, note how in Western Australia the dwelling price index peaked in Q1 2014, stalled in Q2 2014, before losing its mojo and beginning to decline in the third quarter of that year, by which time dwelling starts were already on their way down as builders had anticipated the downturn. </p>
<p><span style="color: #333333; font-family: Tahoma, Helvetica, Arial, sans-serif; font-size: 12px;"><a href="/images/2016/10/17/BA1.jpg" target="_blank">Click to enlarge</a></span></p>
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<br><div>Why does this happen? </div>
<div> </div>
<div>Predominantly because developers have become aware that demand is fading, and are understandably reluctant to commence a project if the sale of the end product for an acceptable profit is in doubt. </div>
<br><div><strong><span style="text-decoration: underline;">House commencements robust</span></strong></div>
<div> </div>
<div>Detached houses on average take 6 to 8 months from commencement to completion, although sometimes a bit less than six months in the sprawling greenfield sites of Queensland and the Northern Territory. </div>
<div> </div>
<div>In Western Australia, detached house commencements peaked in the middle of 2014 as it became increasingly clear that the resources sector was slowing significantly and demand for housing was dropping.  </div>
<div> </div>
<div>Elsewhere commencements for detached homes remain fairly robust in trend terms, while in Victoria sentiment appears to be positively serene. </div>
<div> </div>
<div>This is not without reason: population growth in Victoria is tracking at close to 115,000 per annum with inbound interstate migration heading to record highs.</div>
<div> </div>
<div>With variable rate home loans available from well under 4 per cent buyers for new homes in Melbourne should be sourced reasonably comfortably over the next few quarters.</div>
<br><div class="separator"><a href="/images/2016/10/17/BA2.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/10/17/BA2.jpg" alt=""></div>
<br><div>Progressively through the cycles, Sydney is increasingly struggling to provide new build houses at affordable prices - the successive peaks in new house construction are falling - except out towards the western and south-western city fringes where infrastructure is painfully sparse and demand for housing inherently lower. </div>
<br><strong><span style="text-decoration: underline;">Other dwellings - units</span></strong><br><br>The dynamic for the market in attached dwellings is markedly different!<br><br><div>This construction cycle has seen the approval of more high density and 'high rise' apartments than ever before. </div>
<div> </div>
<div>A unit or apartment project might take 15 to 21 months on average to be completed from the point of commencement, which in part explains why completions have taken so long to have an impact through this cycle.<br><br>In Sydney and Melbourne it is usual for apartment projects to take more than 24 months to complete on average, largely due to brownfield site remediation challenges (the figure is much lower in Queensland, for example, at around 19 to 20 months). <br><br>With lead times for new apartments so much longer, developers are often required to ensure a certain percentage of pre-sales before project financing can be secured. </div>
<div> </div>
<div>Commencements of attached dwellings remain strong in New South Wales. </div>
<div> </div>
<div>Overall, in fact, we should expect attached dwelling commencements to remain higher than their long run averages in Sydney (on average, through the cycle), since over the last three decades fewer houses are being constructed, while population growth today is typically higher. For now at least.<br><br><strong><span style="text-decoration: underline;">Concentration risk</span></strong>
</div>
<div> </div>
<div>The Reserve Bank of Australia (RBA) provided some useful analysis of how many inner city apartments are expected to be completed in the next two years.</div>
<div> </div>
<div>In Sydney the number is 10,000, representing a relatively low share of the established dwelling stock when compared to other cites.</div>
<div> </div>
<div>Sydney's construction boom is quite widely dispersed, although as usual there will only be a comparatively small increase in the dwelling stock in the beachside eastern suburbs or the treasured garden suburbs of the lower north shore. </div>
<div> </div>
<div>In LGAs such as Parramatta, on the other hand, there are still thousands more apartment completions expected, and the north west is another region that is expected to suffer from oversupply. </div>
<div> </div>
<div><a href="/images/2016/10/17/RBA.jpg" target="_blank">Click to enlarge</a></div>
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<div class="separator"><em><span style="text-decoration: underline;">Source: Reserve Bank</span></em></div>
<div> </div>
<div>In Melbourne (16,000) and Brisbane (12,000) the number of expected inner city apartment completions is both higher and more concentrated, and as such will also represent a greater percentage increase in the dwelling stock.</div>
<div> </div>
<div>This has been well enough known for some time, not least by developers with their ears to the ground. </div>
<div> </div>
<div>Sure enough, total attached dwelling commencements are now in decline in Victoria and Queensland, while in Western Australia they peaked all the way back in 2014. </div>
<div> </div>
<div><a href="/images/2016/10/17/BA3.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/10/17/BA3.jpg" alt=""></div>
<br><div>In the southern states the figures for attached dwellings are relatively immaterial, and thus are not included for discussion here. </div>
<div> </div>
<div>In both Melbourne and Brisbane it is easily possible to find plenty of examples of apartments being resold for less than they were initially bought for 'as new', a sure sign of the impending downturn.<br><span><br></span><strong><span style="text-decoration: underline;"><span>The wrap</span></span></strong><br><span><br></span><span>Attached dwelling commencements are likely to decline further through 2017 as developers fear that new off-the-plan purchasers are at risk of not settling, particularly those based offshore. </span><br><span><br></span><span>To date, non-settlements have reportedly remained low, and material losses to banks have not yet resulted.</span><br><span><br></span><span>In theory - at least in areas and property types that people actually want to live in! - while credit remains available markets should be self-correcting in time as dwelling commencements fall, and buyers sensing bargains populate the newly supplied markets. </span><br><span><br></span><span>The Reserve Bank took a detailed look at the apartment sector in its bi-annual Financial Stability Review, and concluded:</span><br><em><br></em><em>"Any oversupply in Australia would be more localised to certain geographic areas, and potential price falls tempered as the population moved to absorb the new (and cheaper) supply of housing in these areas over time."</em><br><em><br></em><span>Of course, central banks rarely predict catastrophes, for fear that they may become self-fulfilling. </span><span>Be vigilant!</span>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Demand is fading, let the apartment downturn commence: Pete Wargent

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<div>The ABS Consumer Price Index figures confirmed that rental growth nationally has continued to be slow - and slowing - of late, as should generally be expected at this stage in the construction cycle. </div>
<div> </div>
<div>It's important to recognise, though, that the property market is cyclical. Always has been the case, and always must be! </div>
<div> </div>
<div><a href="/images/2016/08/02/8.3%20PROPERTY%20CONSTRUCTION%20CYCLE.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div><img src="/images/2016/08/02/8.3%20PROPERTY%20CONSTRUCTION%20CYCLE.jpg" alt=""></div>
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<div>With annual rental growth declining to +0.7 percent nationally, this was the slowest result in nominal terms since 1994. </div>
<div> </div>
<div>One of the outcomes we can expect to see in an era of low inflation and low interest rates is that things will actually decrease in value from time to time!</div>
<div> </div>
<div>Something that was of course far less likely in say the early 1980s when inflation was blazing along at 10 to 12 percent and interest rates were much, much higher (the typical home loan rate back then was an eye-watering 12 to 14 percent - yowsers). </div>
<p><a href="/images/2016/08/02/A1.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/08/02/A1.jpg" alt=""></p>
<p><br><span>The plus side for property investors in this era of lower inflation is that mortgage debt has never been so cheap, with ING releasing a record low variable rate product at just 3.79 percent last week. </span><br><br></p>
<div><strong><span style="text-decoration: underline;">City by city</span></strong></div>
<div> </div>
<div>The soft annual result was driven largely by sharp declines in the resources capitals. In Perth, annual rental growth declined by -5.2 percent over the year to June. </div>
<p><a href="/images/2016/08/02/A2.jpg" target="_blank">Click to enlarge</a></p>
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<div>And in Darwin, annual rental growth declined to -6.4 percent. Of the smaller capital cities, Hobart and Canberra have both been somewhat soft rental markets in recent years, but both seem to have turned a bit of a corner, with rental growth in Hobart now picking up in response to tight vacancy rates. </div>
<div> </div>
<div><a href="/images/2016/08/02/A4.jpg" target="_blank">Click to enlarge</a></div>
<div> </div>
<div><img src="/images/2016/08/02/A4.jpg" alt=""></div>
<p><br><strong><span style="text-decoration: underline;">Reality check</span></strong><br><br></p>
<div>Slow rental growth seems to cause a good deal of excitement and sometimes hyperbole in reporting, but it is worth stressing that cyclical rental markets are an integral part of the property market and construction cycles. </div>
<div> </div>
<div>Moreover, although there are many ways to present data to show it in its most unfavourable light (such as cherry picking start dates, dodgy y-axis selection, adjustments for "inflation", or simply focusing on decreasing annual growth rates) over the long term generally rents do increase in areas where there is the strongest demand for housing.</div>
<div> </div>
<div>In fact, despite what you'd think from most articles on the subject, rents are actually at all-time highs in Sydney, Melbourne, Brisbane, Adelaide, and Hobart (even if you must adjust for inflation in the case of the two largest cities). </div>
<div> </div>
<div>Historically nominal rents have rarely declined since inflation was was generally stronger, but this may change in future cycles.<br><br>Plotted below are the rental CPI numbers indexed back to 1972. </div>
<div> </div>
<div class="separator"><a href="/images/2016/08/02/A3.jpg" target="_blank">Click to enlarge</a></div>
<div class="separator"><img src="/images/2016/08/02/A3.jpg" alt=""></div>
<p> </p>
<div>Naturally enough city-wide figures mask diverging underlying trends. After taking a bit of a look around Sydney last week - see <a href="https://petewargent.blogspot.com.au/2016/07/traffic-traps-and-infrastructure-gaps" target="_blank">here</a> - I'm fairly sure that off-the-plan unit rents are struggling in the Parramatta LGA, for example. </div>
<div> </div>
<div>On the other hand, if you excitedly confronted renters in Manly with a 'good news story' about weak rents you'd likely be met with a hollow laugh.</div>
<div> </div>
<div>Another point worth acknowledging is that due to the compounding effect, small increases in rent in the short term tend to stack up to become very large increases over time. </div>
<p><a href="/images/2016/08/02/a5.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="/images/2016/08/02/a5.jpg" alt=""></p>
<p> </p>
<div>While I've personally been a fan of the idea of "rent-vesting" - renting and investing in multiple properties - I've also often furrowed a brow when media articles suggest that young folk should just forget buying a home and rent instead.<br><br>This might have worked if reporters were good at timing market cycles and people were good at saving, but generally speaking they haven't been, and they aren't. </div>
<div> </div>
<div>Ultimately home ownership is an effective means of forced saving, and should form an important part of a retirement plan. </div>
<div>
<br><strong><span style="text-decoration: underline;">The wrap</span></strong>
</div>
<div> </div>
<div>Broadly as expected, rental growth remains sluggish.<br><br>Looking at the pipeline of properties under construction this seems dynamic appears likely to continue for the next couple of years at the capital city level. </div>
<div> </div>
<div>
<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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Rental market cyclically sluggish: Pete Wargent

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<div>EXPERT OBSERVER</div>
<div> </div>
<div>Less than a month ago, one report suggested Australia might have the 'world's worst management' of the virus, and yet now it has transpired that our results are among the very best in the world, alongside New Zealand. </div>
<div>
<br>Whether that's by luck or by judgement - or most likely a bit of both - may only be known in the fullness of time.</div>
<div> </div>
<div>As to how this is impacting real estate searches, there are three main factors to bear in mind.</div>
<div> </div>
<div>Firstly, there are now record low mortgage rates for new borrowers, from just over 2 per cent, and these look set to persist for<em> at least </em>three years. </div>
<div> </div>
<div>Secondly, there's now some potential return for a return of the cobweb effect we saw before the election last year, which may kill new supply, at least in tightly held or blue chip areas. </div>
<div> </div>
<div> </div>
<div>
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<br>Dwelling starts look set to slump to around a 70-year low, and while plenty of aged listings remain on the market, quality new listings are now rather thin.</div>
<div> </div>
<div>For example, Real Estate reported that there was just one new apartment listing in Coogee over the course of a week, which is exasperating for anyone wanting for take advantage of the slowdown.</div>
<div> </div>
<div>And thirdly - a point I've alluded to previously - while Canada, the US, and many developed European and Asian countries have grappled with the spread of the virus, the two countries which are emerging with enhanced reputations as the most desirable to live appear to be New Zealand and Australia. </div>
<div> </div>
<div class="separator"><img src="https://1.bp.blogspot.com/-FCrTsrhS1A8/XqeB4-FGTkI/AAAAAAAA1a0/FNk2h5mGer4YoMzTOD_POJsFl6E9LiKcgCNcBGAsYHQ/s640/BB.jpg" width="640" height="448" data-original-height="517" data-original-width="738"></div>
<p><br><span>A 'Lucky Country' indeed.</span></p>
<p><span><strong>PETE WARGENT</strong><em> is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em></span></p>
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