2022 will usher a tsunami of housing supply

Yesterday, the Australian Bureau of Statistics (ABS) released dwelling construction data for the September quarter, which showed that annual detached house commencements hit their highest level on record, with total commencements just below record highs:

By contrast, actual dwelling completions remained depressed, suggesting the supply pipeline is chock full:

The below charts plot annual dwelling approvals, commencements and completions against population growth nationally and across the five major states, and give us a clearer picture on the structural supply situation facing the nation.

National:

Nationally, population growth collapsed to only 45,989 in the 2020-21 financial year, versus dwelling commencements of 228,003 in the year to September and dwelling approvals of 232,230. By contrast, annual dwelling completions were lagging way behind at 183,095 as at September.

Housing supply nationally should rise strongly in 2022 as homes currently under construction are completed:

New South Wales:

It’s a similar story in NSW, where population growth fell to only 22,242 in the 2020-21 financial year. There were 64,885 dwellings approved in the year to September and 63,632 commencements. By contrast, dwelling completions lagged way behind at only 49,537.

Again, NSW supply should spike as homes under construction are completed.

Victoria:

The picture is different in Victoria. Victoria’s population actually fell by 44,700 in the 2020-21 financial year. Annual dwelling approvals (69,278), commencements (70,801) and completions (68,488) were also tracking closely as at September, suggesting there won’t be as bigger supply increase this year:

Queensland:

Queensland’s population growth was stronger at 45,925 in the 2020-21 financial year. Dwelling approvals (44,710) and commencements (43,303) were also running way ahead of completions (31,185) in the year to September, suggesting a wave of supply will hit the market in 2022 as homes under construction are completed:

Western Australia:

In WA, population growth slowed to 17,421 in the 2020-21 financial year. Dwelling approvals (28,225) and commencements (26,204) were running way ahead of completions (13,777) in the year to September, suggesting a huge pipeline of supply exists in WA that should hit the market in 2022:

South Australia:

It is a similar picture for SA. Population growth tanked to 2,966 in the 2020-21 financial year, whereas dwelling approvals (15,001) and commencements (13,912) surged well ahead of completions (10,783) in the year to September. Thus, there is a big pipeline of dwellings under construction in SA that should hit the market this year:

In summary, Australia’s various major housing markets are facing a structural oversupply of homes in 2022 as the massive pipeline of detached homes currently under construction are completed and hit the market at the same time as population growth is weak.

At the margin, this supply should put downward pressure on rents and to a lesser extent prices.

Unconventional Economist

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