August Building Approvals continue to fall
There has been some relief in the approval for apartments in August with the a 6% gain on the previous month, but still -23% below the same period last year. The tick up in approval wasn;t however reflected in the detached housing market which fell -6.6% on last month and are down -18% on last year.
The implications to falling dwelling approvals will continue to flow on to impact the construction industry, employment and to future supply conditions across the markets. It is important therefore to understand the conditions in each city and across the markets as the impacts are more local than national.
The following two charts sum up the overall national picture.
The decline in approvals is far less pronounced in the detached housing markets, where the change in the annual figure is -14.6% on a rolling 12 month basis. As shown in the chart below, Brisbane is down -24%, Melbourne -14%, Sydney -14% and Perth -12%. Each of these cities (with the exception of Perth are still well above the previous low in the cycle in 2013.
Approvals for over the proceeding 12 months for attached housing are down -2% nationally for the month and down -34% from the 12 month period to August 2018. As the chart below shows, Sydney and Melbourne are down - 32% and -36% respectively with Brisbane also down -35% and Perth down -30%. Once again, the declines for Sydney and Melbourne, whilst significant are not yet to the previous low in 2009, though Brisbane and Perth are already at the previous low point, both having started the cyclical decline earlier.
Building approvals in the apartment markets are principally driven by the ability to obtain pre-sale contracts that are necessary to obtain development finance. Whilst there are more non banks in the market offering to lend to developers, the challenge is to convince buyers to part with a deposit on an apartment whilst investment lending conditions remain tough and whilst issues such as non compliant cladding, or major building issues such as at Opal Tower and Mascot Towers are able to occur. Further interest rate cuts are unlikely to address these concerns in the short term.
We therefore expect building approval data for apartments to continue to fall across over the coming month and as a result, we expect supply conditions to ease into 2020 leading to high occupancy levels, rising residential, improving yields and rising prices into 2021.