Several investment banks are out today calling a housing construction “boom” following yesterday’s release of dwelling approvals data for October by the ABS.
According to UBS, approvals averaged 2oo,000 on a seasonally adjusted annual rate in the two months to October, which is the highest level recorded since 1994.
As regular readers will know, I am not a fan of annualising one or two month’s data, and prefer to look at the trend instead. On this count, dwelling approvals have certainly rebounded, although they are not yet near “boom” conditions, particularly given the 45% growth in Australia’s population over the past 30 years (see below chart).
What is particularly interesting about this cycle is that it is being led primarily by unit & apartment approvals, which hit a record 73,971 approvals in the year to October to be tracking 53% above the 30-year average. By comparison, detached house approvals were only 96,616 in the year to October 2013, which was 11% below the 30-year average and 31% below the all-time high set in the year to April 1989.
In fact, the apartment & unit share of total dwelling approvals also hit a record 43% in the year to October, led by the Eastern states where apartment approvals were each more than 40% and, in Sydney’s case, running at 55% (see next chart).
Whether the shift to apartment living is desirable is a moot point. To the extent that it reflects buyers’ growing preference to live in the inner city and close to amenities it is a desirable outcome. While this factor no doubt plays a part, particularly in the bigger cities, the trend towards unit & apartment living is equally likely to have been driven by state governments’ urban consolidation policies, which have effectively restricted development on the fringe and forced-up overall land/housing prices, making unit & apartment living relatively less unaffordable than detached housing.
Irrespective, the shift to apartments will likely persist as long as governments continue to restrict land release, levy hefty charges on new developments, and under fund infrastructure, in the process making apartments the less unaffordable option.
