This is what’s going to set up the beginning of the next property market cycle

Building approvals were fairly flat in January at 14,395 in seasonally adjusted terms, but this result should be seen in the context of recent declines.

The acceleration in the downturn in Melbourne attached dwelling approvals is something to behold.

In the month of January 2019 there were 1,069 units approved in Melbourne, down from 3,122 a year earlier.

Quite a drop!

Sydney, too, is accelerating lower in rolling annual terms, while there is also renewed downward pressure in Brisbane, Perth, and elsewhere.

The slowdown in construction will set up the next housing market cycle in time as strong ongoing capital city population growth absorbs the new housing from the preceding construction boom.

 

There’s a lot of talk about oversupply, but this is only really evident in some pockets rather than nationally, so the national vacancy rate could be back at cyclical lows sooner than people expect, in part due to the credit squeeze for investors.

Remember these are dwelling approvals.

Our intel on the ground for new apartment pre-sales suggests that the downturn has often been felt more sharply than this.

It’s not just units that have been impacted, with a downturn in new house approvals now spreading almost across the board too.

Hobart is an exceptional case across the capital cities, and so deserves its own chart.

Although unit approvals have been adversely impacted by tighter credit, house approvals in the Tasmanian capital are now at the highest level on record in response to the chronic shortage of homes and booming prices and rents.

Public sector approvals are now adding next to nothing to the housing market on a net basis, meaning that election policies relating to the housing market and the supply of rentals are effectively elevated to the level of mission critical.

The spike related to the Rudd stimulus during the financial crisis, but since that time the government has effectively all but given up on adding to the housing stock using public funds.

Piecing it all together the building pipeline is shrinking fast, with monthly house approvals about 7 per cent lower year-on-year, and unit approvals down by more than half, at some 51 per cent lower year-on-year.

The wrap

A very sharp decline in building approvals over the past year, especially for apartments in Melbourne, Sydney, and Brisbane.

But this slowdown has now spread into the detached house market, and also across the country to almost everywhere of the main conurbations, with the honourable exception of Hobart.

This sort of downturn is normally seen to be bad news for the consumption and wider economy, due to the multiplier effect, so we can reasonably expect to see plenty of gloomy news reported in the months ahead.