Building Approval stats were released by the ABS today showing a marked decrease in building approvals across the country. Brisbane and Melbourne show a significant decline however Sydney seems to have not taken a breath - yet.
Whats behind the numbers?
The headline numbers tell one story, however each state is different and Sydney will always need more houses and apartments than the other states. To make a fair caparison between the states, we've compared the dwelling approvals with the state population to see how the approvals per capita look. The results are interesting and don't show up in the newspaper headlines.
The graph below shows the monthly Building Approvals for detached dwellings for Brisbane, Sydney and Melbourne per million people in the state on a 12 month moving average basis.
Melbourne has consistently sought approval to develop more detached dwellings than Sydney or Brisbane per capita, predominantly due to the access to land that allows Melbourne to sprawl out. There is limited evidence of a recent downturn in approvals, however the rolling 12 month averages are likely to have removed these distortions.
The graph below shows the monthly Building Approvals for apartments in Brisbane, Sydney and Melbourne per million people in the state, again on a 12 month moving average. These results are a little more interesting.
Melbourne has had a substantial period of building approval since 2009 and along with Brisbane has now shown reduced activity, despite the moving average smoothing.
Sydney however continues to seek approvals as if nothing has changed. Why ? Sydney has been under supplied for some time and with population growth still strong, together with a general trend toward apartment living, demand continues to be strong.
Many people have been suggesting that Brisbane is the most oversupplied apartment market however when you look at building approvals per million of state population, Brisbane has been approving a lower number of apartments per person than the other capital cities. This is in part due to Brisbane being slower than the other states to take up the apartment living trend. The trend now is clearly declining and the prospect of oversupply also dropping.
Each city has pockets of oversupply which are often pointed to as the benchmark for the entire city however broad based policy decisions to restrict supply often overshoot and exacerbate the pricing conditions.
Do we need to slow down ?
So NSW, with a State Population of around 7.7M approves around 1,433 apartments and 3,416 detached dwellings per month. This equates to around 60,000 dwellings per annum. Doesn't sound like enough when the state grows about 100,000 people per year. Are we heading back to an undersupply ?