Dwelling approvals miss big

ScreenHunter_01 Mar. 03 22.48

By Leith van Onselen

The Australian Bureau of Statistics (ABS) has released dwelling approvals data for the month of June. At the national level, the number of dwelling approvals fell by a seasonally adjusted 6.9% to 12,778. The overall fall was driven by a large decline in the volatile unit & apartments segment, which fell by 12.6% over the month. House approvals also fell but by a more moderate 1.2% Consensus was for a total rise in approvals of 2.0% over the month.

In the year to June 2013, dwelling approvals fell by a seasonally-adjusted -13.0%, again driven by a big fall in unit & apartment approvals (-37.4%), partly offset by a 9.9% increase in detached house approvals:

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A chart showing the time series of seasonally-adjusted dwelling approvals at the national level is provided below, split-out by detached houses and units & apartments:

ScreenHunter_69 Jul. 30 11.42

As you can see, dwelling approvals nationally continue to trend up slowly after bottoming in late-2011, although the uptrend appears to have slowed. This recovery has been driven by a pick-up in both unit & apartment approvals (although they remain volatile) and house approvals (although they remain weak overall).

In annual terms, dwelling approvals are running around their long-term average levels, as shown by the below chart, with weakness in detached house approvals mostly offset by strength in unit & apartment approvals. However, as noted previously, approvals remain highly depressed overall in population-adjusted terms, given that Australia’s population has grown by around 45% over the past 30-years.

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The below chart shows the time-series of approvals at the state level:

ScreenHunter_71 Jul. 30 11.48

This month’s decline in approvals was driven primarily by Victoria, where approvals fell by 24% over the month, mostly on the back of reduced units & apartments (down 40%). By contrast, approvals rose by 7% in New South Wales on the back of units & apartments (up 19%).

And the same data is shown below on a 3-month moving average basis, in order to smooth volatility. As you can see, dwelling approvals are in a short-term uptrend in New South Wales, Queensland and Western Australia, whereas they are trending down in Victoria and are going sideways in South Australia:

ScreenHunter_72 Jul. 30 11.49

Overall, the recovery in dwelling approvals, and housing construction more generally, appears weak, threatening the RBA’s plan for housing to fill the void left as the mining boom unwinds.

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Comments

  1. Hey Chris and Joe, focus NG on new builds only. That should fire up approvals.

    HIA MIA!

    • The HIA’s release today on the construction miss calls for interest rate cuts. The activity prompt from previous cuts in this loosening cycle have been very weak. Why would another chop make any difference?

      • The Patrician

        Interest rate cuts are driving land price inflation.

        Land price inflation is killing new dwelling construction.

        HIA FAIL.

      • I think the bankers, mortgage brokers and real estate agents have mounted a secret coup d’etat and have taken over the HIA.

  2. “Overall, the recovery in dwelling approvals, and housing construction more generally, appears weak, threatening the RBA’s plan for housing to fill the void left as the mining boom unwinds.”

    No problem for Governor Glenn and Team RBA.

    The conclusion they will draw is that house prices are simply not rising fast enough and what that requires are larger mortages and the lower rates that make them possible.

    “Too much debt is never enough”

    • +1 When will they realise that driving up the land price is killing new dwelling construction.

      • It is not land cost.
        It is cost of servicing land
        Material
        Labour
        Contributions
        Taxes
        Levies

        to convert raw land into serviced land on which you can build a house on!

      • Is it? 12 years ago I bought a 10 acre undeveloped block 20 minutes from the center of Christchurch ( power, water and phone went past the boundary on a public sealed road) for $95,000 and built a home on it ( since, sold!). 2 years later a similar undeveloped sister block next door sold for $125,000. In 2010, pre-earthquake and no changes to subdivision rules, that still untouched sister block re-sold for $375,000; a 300% increase. It wasn’t the services that went up, it was the speculative land.

      • Hi David
        Out here in west( point cook ) there was a sale recently where 125 Hectares of raw land was sold for just over 100 million . That takes a 500 sqm block for under 50,000 dollars .

        We know that new builds on a 500 sqm block is going for 500 000 in point cook . So you tell me how in the world is that raw land is 50k but after you putting everything on top . You have to sell it for 500k to make a profit.

        Here is the news article
        http://www.theage.com.au/victoria/vast-western-housing-site-reaps-state-100m-20130528-2n9ne.html

      • Hi Janet
        Have you considered that cost of servicing land in the fringes is probably the setting the price of already serviced land in the suburbs.

        An upward rise in costs can also be seen as upward rise in price in already established suburbs.

        There is a specualtive component but how strong is it. What factors like high fuel costs, labour laws , material costs play ?

      • Yep. Considered all of that ,ino. And I have a developer friend who does medium sized projects ( 10-50 developed blocks) and his ‘rule of thumb’ is 33%, cost of land; 33%, development costs and 33% ( hopefully!) profit. So your Point Cook example looks way out with what he would expect! He’d suggest more like $150,000 to market… not $500k.

      • The Patrician

        Hey indo,
        re your Age Point Cook land sale story, have they started work on it yet?
        I notice that it was “not subject to an infrastructure levy”. Who pays for the infrastucture and when?

      • Hi Janet
        150 K in point cook . You must be kidding right ?

        Why dont you do quick search in re.com.au and see what prices the blocks are selling for?

      • Hi Patrician
        As far as I know no work has started .
        I believe like all new suburbs in Melbourne developer pays for the infrastructure which is recouped from the end user(homeowner).

        I stand to be corrected . But I just wish the costs side are looked more carefully here in MB. Actual costs breakdown .

      • Indo

        Your Point Cook example was for a house and land package on a 500sqm block for $500,000. So, deduct the house cost ($150-$200k) gives you $300,000. Now. Assume the whole 100 ha is not developable (natural features, vegetation, community services, roads, walkways, footpaths, landscaping, etc. Now take off infrastructure costs, holding costs, forward funding services, management and sales staff costs, overheads, bribes, whatever, and a profit margin (say looking for 25% plus return on equity at least) and you can see how the raw land component gets jacked up throughout the process.

      • That is right Nick
        So land price is not the monster it is made upto be.

        It is everyother costs that comes after that.

        (atleast in this case, and I assume the rest of Melbourne has a similar pattern . I cant comment for Sydney or other areas)

      • NHSC/Urbis released a report in 2011 called the National Dwelling Cost Study which breaks down the cost of greenfield housing.

        http://nhsc.org.au/files/2013/03/nhsc-residential-cost-analysis-urbis.pdf

        Their Melbourne greenfield example had a sale price of $450k, of which $45k was subdivision costs, land was $55k, and construction of the house was $175k.

        Some substantial costs which are easy to overlook were:

        GST: $29k
        Selling costs: $22k
        Stamp duty: 3k on the land
        Professional Fees: $21k
        Infrastructure Charges: $11k
        Rates and Land Tax: $6k
        Interest on Loans: $26k.

        Those things add up.

      • The Patrician

        So we are agreed.

        $50k wholesale price for a 500sqm block at Pt Cook is not the problem.

        $250k retail price for a 500 sqm block at Pt Cook IS the problem.

        Land price inflation is still killing new dwelling constuction.

        Glenn Stevens is making the problem worse.

      • $50k wholesale price for a 500sqm block at Pt Cook is part of the problem.

        If it weren’t for governments granting quasi monopoly rights for developable land via urban containment policies, then raw land for development in a place like Point Cook would be similar in price to farmland.

        And I can guarantee farmland in Point Cook isn’t worth $400k an acre.

      • Hi arescarti42
        I have seen that document and it confirms my calcs. Raw land is not the problem
        because I can give you land for free and still value addition will cost another
        200k. This has to be recouped.

        I am not sure how Patrician comes to conclusion that land price is the problem
        What if petrol prices doubles (and assuming linearity) production costs double
        would he blame exorbitaint petrol prices or just blame land prices.

      • The Patrician

        In 2006 the OCR was 6.25% and a block of land at Pt Cook cost $150k.

        The OCR is now 2.75% and the same vacant block of land at Pt Cook now costs $250k.

        Dear Glenn, HIA, HnH etc, Please explain to me how lower interest rates make housing more affordable

      • outsidetrader

        Patrician: “Please explain to me how lower interest rates make housing more affordable”

        That’s easy – using your example, (and assuming mortgage rates have a mark-up relative to the OCR of around 2.25%), the interest repayments are:

        2006 – 150k * 8.5% = $12,750pa
        2013 – 250k * 5.0% = $12,500pa

        So repayments are now $250 cheaper per annum. Surely you didn’t want to pay of the principal too – that would be greedy, and you can just pay that back when you sell the land to another sucker for twice the price 7 years down the track 😛

      • Indo, Your figures are based on yields that are not achievable. Whilst I don’t know this particular site, when you take out all the necessary land for roads, drainage, parks, sports fields, community facilities, general open space etc, you’ll be luck to achieve 10 lots per ha for low density, and 15 for medium.

      • drsmithyMEMBER

        Out here in west( point cook ) there was a sale recently where 125 Hectares of raw land was sold for just over 100 million . That takes a 500 sqm block for under 50,000 dollars .
        I’m not familiar with that specific area, but according to previous posts from PhilBest, who often posts on this topic, undeveloped land should really sell for around $10,000 an acre, like it does in Texas.

        (That would imply about $1,200 for that 500m^2 block you talk about.)

      • Point Cook is an interesting case study.

        In 2009 Point Cook was selling nearly 300 vacant lots a month.

        In the first 5 months of this year Point Cook has sold about 30 a month

  3. Why is there a seasonal adjustment to the annual numbers? Haven’t the “seasons” all cancelled themselves out by then? That is the Trend and Seasonally Adjusted numbers should be the same over a 12 month period….what am i missing please?

  4. IMHO the only graph worth studying is Sydney’s. It is clear that Sydney has under built for about 10 years, so now with prices finally going up again, we’ll see a lot of land banks unload their holdings.

    When supply increases it’ll be interesting to see the inventive policies unveiled to ensure that Sydney RE prices are maintained or better still up-up and away.