Source: Brisbane Times
Official data showing further falls in new housing approvals and ongoing weakness in the apartments market have reaffirmed warnings of more pain to come in the building industry, including the potential loss of 100,000 jobs.
In seasonally adjusted terms, a 6.5% drop in the weakened attached housing segment, which includes apartments and townhouses, dragged the national total to a 1.2% fall, according to the Australian Bureau of Statistics. Detached house approvals increased by 0.4%, and are down by 14.8% year on year. Apartments and townhouses approvals have plummeted by 39.3% over 12 months, and the national total by 25.6%. On a state-by-state basis, the monthly total was driven by falls in Tasmania, of 11.9%, Western Australia (8.6%) and New South Wales (5.4%) and Queensland (1.0%). Victoria recorded a 9.7% increase, while South Australia was flat. Residential construction activity along Australia's eastern seaboard will enter a period of significant decline over the coming 12 to 18 months, according to Charter Keck Cramer., which said the best case scenario in which all currently marketed projects move into the construction phase would still see a net reduction in overall activity through the first half of 2020 across New South Wales, Queensland and Victoria.
The report follows research from BIS Oxford Economics that suggests a recovery in building is in sight, but not before a deeper correction. Over the four years to 2023/24, dwelling commencements are expected to jump by a cumulative 55% to a peak of 236,650 units, setting a new record level. projected to be the peak of the cycle. UBS economist George Tharenou yesterday forecast no recovery this year, with dwelling commencements to drop to 170,000. "As the still near-record pipeline of activity completes, GDP-basis dwelling investment will likely still decline for at least a year and probably slump by about 10% year on year, dragging down construction jobs," he said. "Indeed our tracking of construction job ads is consistent with about 100,000 jobs losses ahead." Connie Kirk, UDIA national executive director, said the thin approvals pipeline would exaggerate effects across housing construction markets and supply chains, employment and broader economic growth. "There is optimism that the Reserve Bank's cut to the official cash rate and APRA's recent decision to revise loan serviceability benchmarks will soon feed into confidence among homebuyers," she said. Head of residential research, Australia, Leigh Warner said that a stabilisation of dwelling prices will also undoubtedly be good for consumption and the stabilisation of the broader economy. "However, we shouldn't get too carried away about any sudden rebound in the apartment market, construction in particular. "Investors are still a large portion of apartment demand and neither offshore nor domestic investor demand are likely to rebound strongly any time soon. This will keep pre-sales rates relatively slow and mean it will stay tough for developers to reach pre-commitment hurdles required for finance and few projects will proceed to construction."
According to JLL's latest Apartment Market Reports, investor demand will remain muted for apartments and "it will continue to be a tough environment for developers to commence new apartment projects, particularly large ones". JLL data showed the number of apartments being marketed across the monitored markets rose 7% in the quarter, but is still 34% lower year-on-year. The total number of apartments in the supply pipeline at all stages of development is 21% lower over the past year, and massive 46% below the late-2016 peak. "The bottom line is the amount of apartments being built will continue to fall for some time yet and will fall below the level of underlying demand from population growth. This will allow the market to catch up and fully absorb recent strong construction levels," Warner said. "However, ultimately I think it will mean not enough new rental stock coming into the market over the next few years and we'll see vacancy return to tight levels and quite strong rental growth start to emerge in 18 months to two years' time." Apartments under construction in inner Sydney fell 17% to 10,230 in the June quarter, and is 40% lower than a year ago, while the number being marketed has fallen 57% in that time, as the total supply pipeline tracked at all stages of construction is just under half its peak level in late 2017. Supply under construction in inner Melbourne fell 3% in the quarter to 17,960 apartments, down 9% over the year. Against the trend, the number of apartments marketed rose slightly in in the quarter to 8,180. Just 4,350 apartments were under construction in inner Brisbane by the end of June, which compares to a peak of just under 16,000 in 2016. The number of marketed apartments rose slightly to around 1,180, but is 68% lower over the past year and 85% lower than its 2016 peak level.
