Dwelling Approvals

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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>
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<br><div>Why does this happen? </div>
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<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>
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<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>
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<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>
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<div>Elsewhere commencements for detached homes remain fairly robust in trend terms, while in Victoria sentiment appears to be positively serene. </div>
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<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>
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<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>
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<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>
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<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>
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<div>Commencements of attached dwellings remain strong in New South Wales. </div>
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<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>
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<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>
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<div>In Sydney the number is 10,000, representing a relatively low share of the established dwelling stock when compared to other cites.</div>
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<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>
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<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>
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<div class="separator"><em><span style="text-decoration: underline;">Source: Reserve Bank</span></em></div>
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<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>
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<div>This has been well enough known for some time, not least by developers with their ears to the ground. </div>
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<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>
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<br><div>In the southern states the figures for attached dwellings are relatively immaterial, and thus are not included for discussion here. </div>
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<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>
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<div>It's important to recognise, though, that the property market is cyclical. Always has been the case, and always must be! </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>
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<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>
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<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>
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<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>
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<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>
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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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<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>
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<div>Ultimately home ownership is an effective means of forced saving, and should form an important part of a retirement plan. </div>
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<br><strong><span style="text-decoration: underline;">The wrap</span></strong>
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<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>
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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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Rental market cyclically sluggish: Pete Wargent

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<div>EXPERT OBSERVER</div>
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<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>
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<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>
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<div>As to how this is impacting real estate searches, there are three main factors to bear in mind.</div>
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<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>
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<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>
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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>
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<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>
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<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>
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<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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Dwelling starts look set to slump to new low: Pete Wargent

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<p>According to the Australian Bureau of Statistics (ABS) November 2016 building approvals data there were 17,569 houses and units approved for construction across the country over the month. </p>
<p>Based on the seasonally adjusted series, the number of dwelling approvals rose by 7.0 percent over the month due to a substantial rebound in unit approvals.  Despite an increase in approvals in November, they are -4.8 percent lower over the year and are -18.6 percent lower than their peak in October 2015 when 21,588 houses and units were approved.</p>
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<p>In November 2016 there were 9,503 houses and 8,066 units approved for construction throughout the country. Over the month, house approvals fell by -0.4 percent while unit approvals increased 17.3 percent. </p>
<p>Unit approvals tend to be lumpy and volatile, which goes a long way towards explaining the 17.3 percent increase in November following a -20.1 percent decline in September and -22.8 percent fall in October of last year. Year-on-year, houses approved for construction were -2.1 percent lower and unit approvals were down -7.8 percent. </p>
<p>Over the current construction cycle, house approvals peaked at 10,649 in April 2015 and unit approvals peaked at 11,763 over the month of October 2015.  November 2016 house approvals were -10.8 percent lower than the April 2015 peak while unit appears have fallen more dramatically, down -31.4 percent from their October 2015 peak.</p>
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<p>Looking deeper into unit approvals by type, it becomes clear that the surge in new high-rise construction projects has slowed.  This data is split into three segments: townhouses, low-rise units (less than four storeys) and high-rise units (four storeys or higher). </p>
<p>The above chart highlights the volatility in unit approvals and also shows that the recent plunge of unit approvals is being driven by the high-rise unit sector. With ongoing concerns about oversupply of high-rise units in certain inner city markets and slowing value growth for units, it seems that developers are responding by seeking fewer new high-rise unit approvals. Another interesting trend over the past year or so has been the steady upwards trend in townhouse approvals. The substantial increase in high-rise approvals over recent years has occurred at the expense of townhouse and low rise approvals. </p>
<p>With the expected further slowing of high-rise unit approvals there is potential for a lift in townhouse approvals over the coming year.</p>
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<p>The two above charts show the proportion of dwelling approvals that were for units.  The data points to the fact that in most capital cities developers have recently slowed their submissions for unit building approvals. As a proportion of all approvals there have been some significant declines in unit approvals in Melbourne, Brisbane, Perth, Hobart and Darwin over the past six months.</p>
<p>The reality is that this is an appropriate response in most of these cities given how much unit construction has been taking place.</p>
<p>Hobart is the one exception where it could be argued that more unit construction is required, particularly given the booming tourism sector.  Sydney and Canberra have recorded no significant slowdown in unit approvals as a proportion of total approvals over recent months.  Sydney has been approving more units than houses for more than two decades where in most other capital cities the dominance of unit approvals over those for houses is a relatively new phenomena.</p>
<p>Unit approvals are trending lower, particularly for high-rise units, which is an appropriate response so late in the current construction phase. The reality is that at least initially, an increasing proportion of these units approved for construction may not be sold. There remains a substantial pipeline of construction work already underway which should keep residential builders busy for some time. </p>
<p>Should, as we expect, approvals soften further and remain well below their recent heights over the coming years absent a pick-up in non-residential or infrastructure construction, there could be some headwinds for builders and associated businesses. </p>
<p>Housing construction has been a significant driver of economic growth over recent years and a slowdown in this sector could also impact on economic growth over the coming years unless some other large industry segment can pick up the slack. <span> </span></p>
<p><em>Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.</em></p>
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Dwelling approvals bounce in November but don’t expect it to continue: Cameron Kusher

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<p><span>GUEST OBSERVER</span></p>
<p><span>The Australian Bureau of Statistics (ABS) released building approvals data for October 2015 earlier today. </span></p>
<p><span>Focusing just on dwelling approvals, although they were slightly lower than the recent record high levels, the overall number of dwellings approved for construction remain extremely high from a historical standpoint.</span></p>
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<p><span>There were 19,652 dwelling approvals in October which was 3.9% higher over the month and 12.3% higher year-on-year.  If we look at approvals over the past 12 months there has been a record high 233,180 approvals which is 17.3% higher year on year.</span></p>
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<p><span style="line-height: 1.3em;">In October 2015, there were 9,435 houses and 10,218 units approved for construction nationally.  House approvals are -2.1% lower over the month and -2.3% lower year-on-year.  The more ‘lumpy’ unit approvals have increased by 10.1% over the month and are 30.2% higher year-on-year.  The data highlights the rising prevalence of unit approvals and this is particularly reflected if we look at the annual approvals.  For the first time ever there have been more units approved (117,072) over the past year than houses (116,111).</span></p>
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<p><span>With the rising prevalence of unit construction there has also been a record high proportion of high-rise approvals over the past year.  Looking at unit approvals over the past year, 25.5% of approvals were for townhouses, 9.1% were for low-rise (less than four storeys) and 65.4% were for high-rise (four storeys or more).  </span></p>
<p><span>To put the rise in high-rise into context, a year ago 56.5% of unit approvals were high-rise, five years ago the figure was 38.1% and a decade ago high-rise accounted for 36.9% of unit approvals.  Clearly densification and demand for inner city living is driving the rising demand for high-rise units.  </span></p>
<p><span>It’s also important to note that over recent years, Chinese and Indians have overtaken New Zealanders and those from the United Kingdom as our largest sources of migrants.  While New Zealanders and those from the United Kingdom often prefer houses like most Australians, Chinese and Indians are much more accustomed to living in smaller homes and in much higher density environments.  This is another driver of the growing prevalence of high-rise approvals.</span></p>
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<p><span>Turning to approvals in the capital cities, there were 17,236 capital city dwelling approvals in October which was 15.9% higher over the month and 16.9% higher year-on-year. There were 6,691 houses and 10,545 units approved for construction over the month.  House approvals fell by -1.8% over the month to be -6.6% lower year-on-year while unit approvals increased 30.8% over the month and were 39.2% higher year-on-year.</span></p>
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<p><span>Across the individual capital cities, house approvals generally fell over the month however, they have for the most part been trending higher of late but are lower relative to a year ago.  Over the month there were 1,373 approvals in Sydney, 2,244 in Melbourne, 945 in Brisbane, 1,410 in Perth, 540 in Adelaide, 77 in Hobart, 43 in Darwin and 59 in Canberra.  Year-on-year the changes in approvals have been recorded at -3.8% in Sydney, +2.4% in Melbourne, -6.8% in Brisbane, -23.9% in Perth, +24.4% in Adelaide, +6.9% in Hobart, -30.6% in Darwin and -45.9% in Canberra.</span></p>
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<p>While housing approvals may be showing early signs of slowing across the capital cities, the same can’t be said for unit approvals which in most cities remain at or close to record highs.  Across the capital cities there were 3,630 approvals in Sydney, 3,640 in Melbourne, 1,671 in Brisbane, 677 in Perth, 561 in Adelaide, 6 in Hobart, 215 in Darwin and 145 in Canberra.  The year-on-year changes in approvals have been recorded at +73.7% in Sydney, +32.6% in Melbourne, +37.4% in Brisbane, -10.8% in Perth, +18.4% in Adelaide, -80.6% in Hobart, +83.8% in Darwin and +0.7% in Canberra.</p>
<p>Based on the data it seems that the demand from developers to seek approvals for units, particularly high rise approvals, is continuing to climb.  Countering this is the slowing in detached housing demand.  As mentioned earlier, the biggest sources of migration to Australia are more comfortable with high-rise development and this coupled with the fact it is relatively more affordable than detached houses seems to be driving the demand. </p>
<p>The challenge from here with value growth now slowing is how many of these approvals will be delivered to the market.  We already have concerns surrounding potential settlement risk for projects already under construction given that banks have recently changed lending requirements to investor.  Keep in mind that unit stock is much more likely to be purchased by investors than detached houses.</p>
<p>Although there has been a slight easing of approvals over recent months they remain at near record highs.  Of course population growth is winding down, particularly overseas migration, which should result in an ongoing improvement in housing supply relative to housing demand.</p>
<p><em>Cameron Kusher is research analyst for CoreLogic RP Data. You can contact him <a href="https://blog.corelogic.com.au/author/cameron-kusher/" target="_blank">here</a>.</em></p>
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Dwelling approvals remain at near record high levels thanks to high-rise approvals: Cameron Kusher

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<div>Building activity is one of the more complicated data series released by the ABS, so I'll just post the headline figures here. </div>
<div> </div>
<div>Overall the level of residential building activity remained high, increasing quite strongly in 2016 in fact, but nationally it looks as though the peak is now more or less in. </div>
<div> </div>
<div>At the end of the year there was still a historically high number of dwelling units approved and not commenced, but Sydney was beginning to chew its way through the backlog. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/13/A3.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/13/A3.jpg" alt=""></div>
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<div>Nationally dwelling commencements remained strong in the fourth quarter of 2016 at more than 57,000 in seasonally adjusted terms.</div>
<div> </div>
<div>But in reality the red hot run is now only being held aloft by Sydney, with commencements declining in Melbourne, Brisbane, and Perth. </div>
<div> </div>
<div>New South Wales saw a total of 19,950 dwellings commenced in the fourth quarter, with Victoria sliding to 16,460, and Queensland dropping sharply to 10,150.</div>
<div> </div>
<div>Commencements have been falling in Western Australia for nine consecutive quarters.</div>
<div> </div>
<div>Plotting the figures in trend terms shows how the residential boom is really just a Sydney story now. </div>
<div class="separator"> </div>
<div class="separator"><a href="https://www.propertyobserver.com.au/images/2017/04/13/A4.jpg" target="_blank">Click to enlarge</a></div>
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<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/13/A4.jpg" alt=""></div>
<p><strong><span style="text-decoration: underline;"><br></span></strong><strong><span style="text-decoration: underline;">Supply coming online</span></strong></p>
<div>At the end of 2016 there were still some 219,384 dwellings under construction, including 152,635 attached dwellings.</div>
<div> </div>
<div>The total is slightly lower than the record peak seen in September 2016, indicating that new apartments were already starting to hit the eastern capital city markets towards the end of last year. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/13/A1.jpg" target="_blank">Click to enlarge</a></p>
<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/13/A1.jpg" alt=""></div>
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<div>There were a record 82,857 dwellings under construction in NSW at the end of the year, some 62,040 of them being attached dwellings, and so many of them of the 'egg box' variety.</div>
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<div><a href="https://www.propertyobserver.com.au/images/2017/04/13/A2.jpg" target="_blank">Click to enlarge</a></div>
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<div class="separator"><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/04/13/A2.jpg" alt=""></div>
<div class="separator"> </div>
<div>The actual number of dwellings actually completed in 2016 were high, but themselves hardly alarming, including in NSW (58,730), Victoria (59,977), and Queensland (44,983). </div>
<div> </div>
<div><strong><span style="text-decoration: underline;">The wrap</span></strong></div>
<div> </div>
<div>While these are big numbers in historical terms, today's largely unnoticed arrivals and departures figures presented some food for thought, with permanent and long term arrivals exploding to 103,570 in February, by some margin the biggest single month on record.</div>
<div> </div>
<div>There was also an unprecedented number of education arrivals in 2016, which may be a coincidence or driven by the lower dollar. </div>
<div> </div>
<div>On the other hand, maybe the government has quietly turned on the immigration taps.</div>
<div> </div>
<div>Remember that most immigrants to Australia head to the two most populous states, which are also home to the two best performing economies and the highest number of job vacancies.   </div>
<div> </div>
<div>Let's hope the new arrivals like egg boxes. </div>
<div> </div>
<div>
<p class="p1"><span class="s1">PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank"><span class="s2">AllenWargent</span></a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank"><span class="s2">blogger</span></a>.</span></p>
<p class="p2"><span class="s3"><em>His latest book is </em><a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank"><span class="s2"><em>Four Green Houses and a Red Hotel</em></span></a><em>.</em></span></p>
</div>
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Let's hope the new arrivals like egg boxes: Pete Wargent

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<p>EXPERT OBSERVER</p>
<p>The CoreLogic home value index, covering the eight major capital cities, posted a robust 0.7% gain in November following a 0.2% rise in October and five consecutive monthly declines. The November rise was across all major capital cities. Prices are still 2.1% below their pre-COVID peak and 3.5% below the peak in late 2017.</p>
<p>The detail shows a broad-based strengthening in the November month. Notably the reopening in Melbourne has finally seen prices turn in the one major market still recording declines a month ago – the 0.7%mth gain surprisingly firm given turnover was still low. Other markets consolidated on previous gains with Adelaide and Perth, the smaller capital cities and regional areas leading the way.</p>
<p>Turnover nationally largely consolidated on its Q3 'pop'. The detail continues to show stark differences, activity in Melbourne only just moving off the extreme lows seen during lockdown but activity across other capital city markets still holding well above pre-COVID levels (and well above new listings suggesting these markets are likely to be very tight in coming months).</p>
<p>Sydney recorded a 0.4% gain to be up 0.3% on a 3mth basis. Units remain a notable weak spot, with prices in this segment down 0.7% in the November month and 1.8% on a 3mth basis, declines accelerating slightly, particularly at the top end of the market. Houses at the lower end of the market have seen the most promising gains.</p>
<p>Melbourne's 0.7% gain was across all segments and building types although prices have generally been firmer for lower priced parts of the market. Despite an apparent large overhang of stock in the inner city, unit prices also posted a solid rise in the month – perhaps a caution that some of the gain may be running off expectations rather than conditions on the ground.</p>
<p>Other markets remain markedly firmer. Prices rose 0.6% in Brisbane, 1.3% in Adelaide, and 1.1% in Perth. The smaller capital city markets also recorded strong gains – Hobart up 1.4% and both Canberra and Darwin up 1.9%. All of these cities except Perth now have prices above their pre-COVID peaks.</p>
<p>The housing market is now moving clear of COVID disruptions with recoveries at different stages across different jurisdictions but gaining momentum everywhere. While there will still be some weak areas, particularly in the Sydney and Melbourne unit markets, the resurgence in activity, the associated lift in market sentiment and more promising outlook for a vaccine remedy to emerge next year suggests broader momentum will remain well supported in 2021. We have recently marked up our price forecasts with a 4% gain now expected in 2021 and a 10% rise in 2022, essentially bringing forward our forecast for a 15% surge that was previously expected to begin in mid-2021.</p>
<p><strong>MATTHEW HASSAN </strong>is a Senior economist at Westpac</p>
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Matthew_Hassan-HHWHptmrw4

Australian dwelling prices lift: Matthew Hassan

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<p>Building approvals for private sector houses rose for the fourth consecutive month in October and were at the highest recorded level since February 2000, according to data released by the Australian Bureau of Statistics.  </p>
<p>Building approvals saw a surprise 3.8 per cent rise in October, with many forecasting a contraction following a huge September spike.</p>
<p>Westpac had forecast approvals would slip back three per cent. </p>
<p>Daniel Rossi, director of construction statistics at the ABS, said the continued strong demand for detached housing follows the relaxation of COVID-19 restrictions in most states and territories.</p>
<p>"Record low interest rates and a range of Federal and state-based incentives are also providing support for the housing sector,” Rossi said.</p>
<p>Housing Industry's Association's Craig Jennion said the figures show the start of the impact of stage one of HomeBuilder.</p>
<p><span class="css-901oao css-16my406 r-1qd0xha r-ad9z0x r-bcqeeo r-qvutc0">Last month the total number of dwelling approvals rose by 15.4 per cent to be 8.8 per cent higher than a year ago.</span></p>
<p>The October gains of nearly four per cent put approvals over 14 per cent higher than they were this time last year.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/DEC/1/October%20ABS%20building%20approvals.jpg" alt=""></p>
<p>There were a further 10,692 private sector houses approved, up 3.1 per cent from September and 31.7 per cent from 12 months ago.</p>
<p>It's now back to back approvals of over 10,000 private sector houses. There hadn't been a single month of over 10,000 private sector houses approvals since June 2018.</p>
<p>There were 16,584 apartments approved, 3.8 per cent up from last month and 14.3 per cent up from the last year.</p>
<p>The biggest spike was seen in New South Wales where a further 32 per cent of apartments were approved from last month, with 4695 units approved.</p>
<p>Victoria unsurprisingly contracted from its big September approval figures, back 15 per cent but still had nearly 300 more apartments approved than New South Wales (4946)</p>
<p> </p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/DEC/1/Approvals%20by%20state%20ABS.jpg" alt=""></p>
<p> </p>
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jrobinson-rf4aSBido9

House approvals rise to 20 year high in October

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<p>EXPERT OBSERVER</p>
<p>Dwelling approvals came in below expectations with a 1.6% drop, weaker than both the consensus view of 0.0% and Westpac's view of a 2% gain. The fall comes after dwelling approvals surged in July by 12% from an 8yr low in June. Approvals are still tracking at subdued levels overall, with monthly approvals still down 14.6% vs December 2019.</p>
<p>The July result represented a catch-up, as approvals delayed by the initial nation wide lock-down were eventually processed by city councils. This raised the risk of an unwinding leading into August results.</p>
<p>Westpac's forecast noted uncertainty over varied COVID effects, with Victoria moving into a 'second wave' lockdown but other states continuing to re-open. Additionally, we saw support for approvals from the Federal government's HomeBuilder scheme – a stimulus programme that provides $25k grants to eligible owner-occupiers buying a new home (or renovating an existing home). The HIA reported a sharp jump in new home sales through June - August (+60% for the three months combined compared to the three months to May).</p>
<p>Private detached house approvals were supported by the scheme, posting a 4.8% increase which marked a 12.4% improvement on year.</p>
<p>The 11.1% fall in private unit approvals led the decline in August, with 'high rise' approvals down 11%, and 'low rise' unit approvals down 12%. This fall partially offset a 23% rise in July, with significant month-on-month volatility expected due to the bundling of unit approvals.</p>
<p>Across the states, NSW approvals continued a volatile trend, posting a decrease of 14.2% in August after approval delays contributed to a 32% increase in July. Tas (-26.2%) and SA (-4.8%) also declined. Gains were particularly strong in WA (+33.8%) and QLD (+8.1%), though broadly across the states approvals compared to a year ago.</p>
<p>As we expected, the impacts of the Vic lockdown beginning early August were not reflected in this release. The state posted a moderate increase of 1.8% due to the time lag, though impacts will surely be seen in coming months.</p>
<p>The value of alterations and additions to residential buildings reported a strong result of a 7% increase, the highest level recorded since April 2016. This segment is seeing support as the 'work from home' trend continues, and workers change their discretionary spending habits.</p>
<p>Large public projects in QLD and NT boosted the value of non residential building approvals by 40.7% in August. However, big double-digit swings in recent months continue to make discerning an underlying trend difficult.</p>
<p>In the near-term, there is the potential for another round of weakness - albeit concentrated in Victoria (which accounts for 35% of national approvals), which has been hit by the second lock-down. Other headwinds will challenge housing approvals into 2021, notable is the sharp slowing of population growth as net overseas migration plummets due to the closure of our international border.</p>
<p><strong>MATTHEW HASSAN </strong>is a Senior economist at Westpac</p>
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Dwelling approvals face weakness: Matthew Hassan

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<p>EXPERT OBSERVATION</p>
<p>The impact of HomeBuilder is now emerging in the ABS Building Approvals Data and there is a significant divergence between the outlook for detached and multi-unit dwellings.</p>
<p>After a number of years of decline, building approvals in Western Australia increased by 32.9 per cent in the month of August. This is consistent with other leading indicators that show that HomeBuilder and the State Government’s Building Bonus have stimulated demand for new homes,” added Ms Lillicrap.</p>
<p>Western Australia also had a very short pipeline of work and these approvals will lead to the commencement of building work on the ground within weeks. This surge lifts the number of approvals to levels last experienced in 2018.</p>
<p>Queensland also saw a 13.4 per cent increase in detached building approvals, confirming that it is also experiencing a surge in new work entering the building pipeline, also from a low base.</p>
<p>Other regions are yet to see the pickup in activity due to HomeBuilder. This reflects a range of factors including, longer processing times with local councils and delays in the finalisation of building plans between the customer and builder, and a stronger pipeline of existing work.</p>
<p>New Home Sales data also suggests that detached house approvals will continue to grow over coming months and across all jurisdictions.</p>
<p>Multi-unit approvals fell by 12.9 per cent in the month to be 14.1 per cent below this time last year.</p>
<p>The small number of multi-unit projects that are gaining approval at this time are likely to have commenced the planning and building approval process years ago.</p>
<p>The multi-unit market has cooled since 2018, after several years of record levels of construction. Activity in this part of the market is likely to remain depressed until there is greater certainty about the pathway for overseas migration to be restored.</p>
<p>In seasonally adjusted terms, the number of detached dwelling approvals during August 2020 compared to June, increased in Western Australia (+32.9 per cent), Queensland (+13.4 per cent) and New South Wales (+0.2 per cent. They declined slightly in Victoria (-0.8 per cent) and South Australia (-0.9 per cent).</p>
<p>The number of multi-unit approvals increased in Western Australia (+43.9 per cent) and Victoria (+6.5 per cent). They declined in Queensland (-3.3 per cent), South Australia (-23.9 per cent) and New South Wales (-31.9 per cent).</p>
<p><strong>Angela Lillicrap </strong><em>is an HIA Economist</em></p>
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