Data points to new houses glut

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By Leith van Onselen

The release of new home sales and approvals data for March has enabled me to compare the quarterly data on new house sales, as provided by the Housing Industry Association (HIA), against house approvals, house commencements, and house completions data, as provided by the Australian Bureau of Statistics (ABS), in order to determine whether Australia is likely to have developed a glut of unsold new houses.

The next chart compares this data at the mainland state level – ie. the sum of New South Wales, Victoria, Queensland, Western Australia, and South Australia. As you can see, new house sales appear to have fallen much more quickly than approvals, commencements and completions since mid-2010, suggesting that a glut of unsold new houses may have developed across the mainland.

ScreenHunter_21 May. 03 08.24

Charts for each of the mainland states are provided below. As you can see, there are large variations between the states, with the stock of unsold new houses appearing to be highest in Victoria, Queensland, and South Australia. By comparison, New South Wales looks to have experienced a smaller increase in the stock of unsold new houses, whereas Western Australia looks like developing a shortage.

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Unconventional Economist
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  1. Oh to be a developer like Stockland…

    How long can they hold the inventory on the books before it really burns a hole in their pocket?

    What happens when one of the developers breaks ranks and slashes prices to generate cash flow for debt servicing? The wheels could come off quite quickly.

    Or maybe we’d see more bogans pile into oversized expensive to run shitboxes miles from anywhere, thinking now’s the time to buy a house. Low prices, low rates. What could possibly go wrong?

    • Mdsee you truly believe these new homes are expensive to run?

      We are in Melbourne, it was 4 degrees outside yesterday when I woke up the house was a nice toast 18 degrees.

      Brand new house, full of insulation, no drafts.

      Also this house has a full complement of LED lighting even with all the increases in energy costs we pay less here than we did in our old home 5 years ago.

      • dumb_non_economist


        The problem is your name, your internal thermometer is not getting a signal; 18 degrees, that’s bloody freezing! I’ve had to turn up the heating just reading that.

        • JacksonMEMBER

          Unless Stockland owns all the building companies listed on that link, bellboyau is correct.

          UE makes statements like “suggesting that a glut of unsold new houses” – I just don’t understand this. Stockland (or equivalent) doesn’t build 1000 houses and then try to sell them, it’s a two part transaction with a building company selling the house on contract. If the sales diverge from the approvals, this means lots of empty blocks, NOT a glut of unsold new houses.

          Or I need a beer. Or both.

          • The Patrician

            The top chart indicates there were ~92,000 new houses COMPLETED in the last year.(purple line)

            The same chart indicates that there were ~60,000 new houses SOLD in the same period.

            That indicates that there are ~30,000+ COMPLETED homes remaining unsold for that period. Leith’s statement appears reasonable on that data.

            I think you need a beer.

          • JacksonMEMBER

            At ~$200K a pop, this would mean Stockland etc are sitting on $6B of housing assets other than land. I can’t believe they would spend that kind of money on building pre-sale.

            Isn’t it simply that 90000 couples/families had their house finished last year, and only 60000 new families signed up? Points to a major drop off in housing construction. There is a 9-12 month gap between a sale and a completion.

          • The Patrician

            Alright lets analyse your point re the 90,000 new completed-home owners.

            Are you contending that all new houses have to be sold before they are completed?

            Where do those 90,000 sales appear in the new home sales data in the preceding 12 mths?

          • surfbeach2536

            Pat, Leith may be right but I wonder if you are missing something in your reasoning. Homes are both pre-purchased (contract built) and built speculatively. If we offer the converse of your argument then new buildings built prior to 1997 were not completely sold until around 2000.

            For a more accurate representation of housing stock we may be better looking at sales inventory rather than the graphs above.

            It logically follows that if sales are down now, lower approvals are coming our way (14-90days), less commencements (30-180days)and fewer completions(120-360days)

            I am guessing this points to a housing glut at the present, job losses to come, lower interest rates soon, shortage in 12-24 months time

          • The Patrician

            The bottom line is, on the above data, for the last 9 years we have been “completing” ten of thousands more new houses than have sold.

          • surfbeach2536

            Pat, I must disagree with your last statement on the above data. The chart shows that in years 97-2000 more homes were sold than completed and again in 2002. If you assume that completions occur after sales and syncronise the 2 lines then it seems we have a balance but this is a rough analysis.

            IMHO 2 get a more accurate sense of housing stock current sales inventory should be examined not the graph above

  2. From what I can see all other states have a small easing in the rate of decline, but
    Queensland is in the toilet!

    Again I don’t think it serves to take an overview at a national level given the huge differences between states.

    Geographically and economically we might as well be looking at different countries within Europe.

    • From what I can see all other states have a small easing in the rate of decline, but
      Queensland is in the toilet!

      Victoria looks screwed as well, given house sales have fallen far more sharply than construction.

      “Again I don’t think it serves to take an overview at a national level given the huge differences between states.”

      I reckon our economic overlords in Canberra and Martin Place would disagree. That’s why I provided both series.

  3. Rumplestatskin

    I’m not exactly sure why completions need sales. Surely a developer can have a long term horizon and simply own and rent the new dwellings they have constructed? It’s not the ‘norm’ of course, but it is actually a reasonable play given the situation facing owners of development sites. Either

    1) Wait to develop till the market picks up, all the while having a site falling in value, or
    2) Sell the site in a tough market, and cement your losses, or
    3) Develop the site despite being unable to sell off all the dwellings, and just keep the dwellings and rent them for the income. They can always be sold in the future, but you get an early income stream.

    Those developers with plenty of capital are probably choosing 3). I know that quite a few private developers are doing this in my area.

    Some of this action probably leads to empty new dwellings waiting for sales. But not as much as these charts would make out. We just need to look at the rental market to see that the recent rental growth is over and that new supply is coming on the rental market.

    • You need to look at the land sales when you talk about slaes of new detached dwellings. It’s a two stage transaction.

      The buyer thinks they are getting a package deal, but actually they buy the land, and then they have the house erected on two different contracts. Even when they deal with one vendor, the construction company will be a different entity even if it has the same parent.

      So if sales of vacant land have taken off to fill that void the that would explain the difference. A package sale is onlt a vacant lot sale to the titles office, not a house sale.

      Your build and rent model might work for cashed up developers like Harry T but most developers can’t move from developer finance (very expensive) to commercial finance, the path is quite rocky.

      In the seventies and eighties many builders went broke building spec homes that they couldn’t sell. Flooding the market with new houses built on the city fringe has it’s own set of problems.

      • The Patrician

        “Flooding the market with new houses built on the city fringe has it’s own set of problems”

        Particularly for REA’s and mortgage brokers who aren’t getting a piece of the action.

        • Peter Fraser

          And there I was thinking that you had grown beyond pointless inane ad hominens.

          Silly me.

      • Correct Peter. Most big developers will not hold and rent. The time/cost of money is forcing many to ‘get out’ of several developments. Stockland selling out of all, but one development on the Sunshine Coast is a good example.

    • The Patrician

      Interesting point.

      From 1997 to 2004 national house sales tracked or exceeded completions. Since 2004 completions have exceded sales by a steadily increasing amount to the point where completions are now exceeding sales by ~30,000 p.a.

      Are we seeing a structural shift in home ownership or is there another explanation? Methodology?

      • It could also be that a larger proportion of the completions nowadays are demolition and re-builds of old pre-existing homes. This would add to the construction figures without affecting the new house sales figures, which are typically new estates. Because of this, and the fact that the data comes from different sources, I like to look at the rate of change rather than actual levels.

    • LabrynthMEMBER

      Rumple – Your comment shows that you have very little understanding of the realities of development around Australia. The majority of developers who build up to 100 units are small in terms of chashflow. They don’t have strong cash flows and need to sell the stock to settle their debts with the banks. Not everyone can hold onto units and rent them out. Also If developers are retaining stock then yields will fall for mum and dad slumlords in the vicinity of the area. The developers you might know are holding small boutique blocks but the 10 story monstrosities will do the damage.

      The number of developers retaining stock by choice is minute. It’s the whole scenario last year where willing sellers turn into reluctant landlords. It will be interesting to see what these reluctant land lords do as rents become softer and holding costs increase.

      • Rumplestatskin

        “Your comment shows that you have very little understanding of the realities of development around Australia.”

        Perhaps you can enlighten me on how you see the current new dwelling construction dynamics playing out?

        “They don’t have strong cash flows and need to sell the stock to settle their debts with the banks. Not everyone can hold onto units and rent them out.”

        Not everyone has to. That banks probably see development lending as very risky, perhaps only cashed-up developers are able to fund construction at the moment. And perhaps they think that it’s a better investment of their funds than the next alternative.

        “Also If developers are retaining stock then yields will fall for mum and dad slumlords in the vicinity of the area.”

        Yes. We can see that new stock is now depressing rents.

        “The number of developers retaining stock by choice is minute. It’s the whole scenario last year where willing sellers turn into reluctant landlords.”

        How do you know it is minute? Surely it is a far larger share now than say 7 years ago?

        ” It will be interesting to see what these reluctant land lords do as rents become softer and holding costs increase.”

        I actually expect prices to start picking up again in about 2-3 years time. My personal view is that if you already own a site it is a good strategy to build now, hold, and sell off as prices increase in about 5-8 years.

        By my reckoning this is very reflective of the late 1990s – stable prices and peaking rents.

          • Peter Fraser

            construction costs rise Janet, especially when construction activity increases.

          • Rumplestatskin

            Actually, property is known to be very cyclical. We had a boom in the early 2000s. Basically there has been no real house price growth at the national aggregate level for ten years now, even though many cities and towns boomed later in the cycle.


            Interest rates will fall a little more this year, rents might fall a little, or more likely grow below inflation Home prices will probably fall a little too.

            Wages might fall, but I expect them to hold in nominal terms. Unemployment is still trending up slowly, and might continue for another year.

            The US economy is now finally showing signs of life.

            We will have a bit of a hit from the peaking mining investment later this year and next.

            Which means that by late next year we will really be getting close to the low of the housing and macro-economic cycle.

            Buy low, sell high yeah?

          • Rumplestatskin
            To base any predictions on the past ‘cycle’ is foolish at best. We are entering an unprecedented demographic change, so all your old bets are off.
            Interest rates can fall, and so did house prices. Auctions rates can be strong and improving and yet house prices are falling. Population growth is strong and yet house prices are falling. To advise anyone to put their main eggs into a very unknown risky basket, is mad as batpoo while rents remain so low compared to an average mortgage.

            Developers do not hold and rent, they sell out and write off the losses.

            Are you the same Rumplestatskin? What has changed for you CK? Why would rising house prices be good for an advanced society? Heck, even PF agrees that rises above CPI/wage growth is a bad thing.

          • Rumplestatskin


            I don’t think prices rising above wages necessarily means much. Housing affordability is mostly about rental costs, which although they have risen a little recently, appear to be falling again.

            Actually the rent to mortgage interest ratio is at a record high – hasn’t been this way since 1997. So by that measure it is coming up to the best time to buy for 16 years.

            Past cycles have been very regular, but you are right, the past is not always a good guide to the future.

            Will the big macro-factors we are seeing come into play? Of course. The last cycle had boomers and their offspring in the workforce at the same time. The next cycle will not see that.

            We also have a European economy on its knees with not end in sight.

            Developer’s as a general rule don’t hold to rent. I noted that in my initial comment. There are a few private family-run firms who do, and I have noticed them building apartment blocks near me. My gut feeling is that these guys might be building more now.

            However there are many factors at play in the development game, and many players. Investor finance is picking up, so that’s great news if it is encouraging new housing construction.

            My point is that there must be a reason for the divergence of construction and new sales figures, and that divergence can be explained by the fact that sales are not a prerequisite of construction.

            It could also be explained by the two separate data sources capturing different samples.

          • Thanks, food for thought indeed….
            Best time to buy for 16 years still worries me a little, actually a lot as I certainly do not feel that in my guts or when I look at the demographic data..
            No buying now, while as you mention rents are likely to decrease and so are the house prices is mad to me, but hey, I have been buying cash positive commercial for some time, so I suppose it depends on what RE you are buying, where and what for.

        • Alex Heyworth

          Developers would only hang on by choice if they thought the short term capital gain would be enough to offset the difference between rental + depreciation allowance – expenses and cash in the bank. I would not expect many developers to be that naive. Nor would they be satisfied with such a low return on their investment.

        • LabrynthMEMBER

          Your forgetting if the developer retains the stock then the stock devalues by what grant is available at the time automatically setting them back Stamps + grant. If the developer retains their stock value automatically goes backwards.

          “How do you know it is minute? Surely it is a far larger share now than say 7 years ago?”

          Pretty much every residential development in Brisbane and Western Sydney comes across my desk. Next to no developers retain stock. They might keep a penthouse for themselves or the builder to live in but nothing more.

          • The Patrician

            “Pretty much every residential development in Brisbane and Western Sydney comes across my desk”

            Does that include any of HRH’s developments?

        • With interest rates hovering around record lows, how much cheaper is mortgage credit likely to get though Cameron?

          If prices resume a solid uptrend, it seems to me that those not already in the market will become increasingly unlikely to be able to enter, seeing as by around 2020, typical house prices would probably be passing three-quarters of a mil.

          I do see it as being quite possible for the housing market to function for quite a while with investors selling houses to each other becoming an increasingly large percentage of activity as rising prises feed rising equity, creating a massive advantage for those who already own housing while new entrants fall to a tiny fraction of more historically normal levels as they are simply priced out of home ownership (I suggest that many already are).

          My problem with this is that in such a situation, the price of housing becomes totally divorced from the purpose of housing – it is merely a vehicle for asset speculation while it’s only real purpose – providing the basic human need for shelter from the elements – becomes secondary. It seems to me that we are regressing to a situation whereby a large percentage of the population will never afford their own home and many peoples homes will instead be owned by a class of landlords. Yes, I know this has been said before down the years but we offset it by making credit ever cheaper. As we approach effective ZIRP, what do we do now to make sure that the average John and Jane Doe with no pre-existing assets and equity can afford to keep taking on ever larger loans?

          Of course, I’m beginning with the premise that affordable housing represents social progress – not everyone agrees or cares.

      • BubbleyMEMBER

        Labrynth, just for my own education…

        I’m of the understanding that most developers have to sell a minimum of 60% off plan before the banks will loan them the funds to start the project. Without the pre sales the development doesn’t even get off the ground.

        Is that right? or am I mistaken?

        • LabrynthMEMBER

          Minimum for a development within 10km of a CBD is around 30% average 50%. 80% is in riskier area’s eg gold coast or NRAS developments. I know a development in Parramatta CBD that had 100% pre-sales not able to secure funding during the GFC.

          Banks will vary their pre-sales from developer to developer. Even if the developer does not need pre-sales they usually get enough sales to borrow the building costs.

    • Rumplestatskin,

      The private rental market is indeed an interesting creature.

      While we don’t tend to crunch our own numbers all that much, and probably won’t speak to your question directly, some of the posts on our blog at the Tenants’ Union might be of interest.

      A couple of points to consider: empty dwellings waiting for sales will invariably be at the higher end of the market. Most tenancies at this end (or at any point in the market, really) will be for a minimum fixed-term of six months. An investor is more likely to purchase an established dwelling. An owner/occupier taking advantage of current grant schemes (in Qld, NSW and Vic at least) is unlikely to purchase a dwelling that has already been tenanted for six months or more.


    • I also understand that if developers build houses/units hey get a decent tax break over a 10 year period of around $8,000 a year as long as they drop the rent below average rent prices. (I think this is how it goes and not 100% sure of the dollar figures, but I am sure someone would show me the error of my ways.)

  4. The Patrician

    Just to be clear Leith, all the above data is for detached houses only (ie does not include units)?

      • The Patrician

        Why do you use “major capitals” data for the national chart? Is there away to capture the total national numbers in this chart?

    • That is superb!

      WTF is going on down there? They will presumably be crying out for a massive immigration intake at some point soon.

      • Tassie’s a beautiful place, but I guess it’s hard to get people flocking to it when jobs are more scarce. Tasmanians generally move to the mainland in search of higher paying jobs. Also, the cold weather puts people off moving there. It really hasn’t increased its population much over the years.

    • Good to see you back. Tassie is our number 1 ageing state, so we watch with keen interest as to how it plays out there.

    • Tasmania built 1267 more residential dwellings than people added to its population for the 2011-12 financial year. One for every 0.396 people added

      Ah a shortage-denier classic.


  5. You only have to check this out to see how tapped out FHB’s are:

    Only 37 applications in the first 3 months for a grant of $15k ($7k base FHOG plus $8k BOOST). The industry players seem shocked, just flabbergasted. “We’re throwing money at people and yet they still don’t want to buy our product”.
    It couldn’t be anything to do with the high prices, could it? Nah!
    What’s next? $30k grants for all with 100% LVR? This housing market has to keep moving or we’ll all be rooned!

    • So what is residential property all about then?

      So much wrong with her statement I wouldn’t know where to start.