Houses boom, apartments bust

Never has there been such a strong divergence between the construction of detached houses and apartments.

Yesterday’s dwelling approvals data from the Australian Bureau of Statistics (ABS) revealed that 14,072 detached houses were approved over the month – a 58% increase year-over-year and the highest monthly count since the series began in 1983:

Detached house approvals

Detached house approvals hit another record high in April 2021.

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It is the opposite situation for units & apartments, with approvals dead flat over the year, but tracking way below pre-COVID levels:

Apartment approvals

Apartment approvals down.

The divergence is clearer when viewed on an annual basis:

Dwelling approvals - annual

What a divergence.

This divergence has been caused by two main factors.

First, the Morrison Government’s HomeBuilder stimulus package has been targeted at detached houses. In turn, it has pulled forward demand.

Second, the economic conditions facing the two segments are vastly different. The apartment market is facing stiff headwinds from the collapse of international students, alongside the switch in preference towards detached houses. Sydney and Melbourne have also begun to lose population to other jurisdictions where houses dominate.

The impact is most clearly apparent in the high-rise apartment sub-market where approvals have collapsed, as illustrated in the next chart:

High-rise apartment approvals

High-rise apartment approvals have collapsed across every major market.

Nationally, high-rise approvals are down around 57% from their October 2015 peak.

The collapse in approvals has been driven by the three largest states, which have declined as follows:

  • NSW: down 59% from September 2016;
  • VIC: down 69% from October 2015; and
  • QLD: down 64% from April 2016.

The outlook for the high-rise market is obviously poor given international students are unlikely to return until next year at the earliest, alongside the massive pre-existing oversupply of apartments.

Unconventional Economist

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