Housing supply pipeline surges as apartments lag

The contrast between Australia’s detached dwelling and apartment markets has become increasingly apparent following last week’s release of March quarter building activity data. 

The Australian Bureau of Statistics figures show that national detached dwelling commencements rose by 5.9% q-o-q and were 40.6% higher than they were a year earlier. In fact, the quarterly commencement figure of 36,395 (seasonally adjusted) was the highest quarterly result on record and followed a near record December quarter. 

On a rolling annual basis, detached dwelling commencements have reached the highest level since 1995 – in stark contrast to ‘other’ dwelling commencements, largely comprising apartments, which have fallen to the lowest quarterly level since June 2012. 

The fall follows a shift in focus for developers, many of whom have adjusted their pipeline to build higher quality, downsizer product for owner occupiers in lieu of large-scale investor product – demand for which is largely reliant on international border re-openings, overseas migration and the return of international students.

The one caveat is vacancy rates, which are circa 1% in most metropolitan markets (outside of Sydney and Melbourne), which is driving rent increase and may start to encourage more investment activity, with signs of a turnround in investor financing in recent months.

The ABS stats have also provided further evidence of the impact of the Federal Government’s now completed HomeBuilder stimulus package.

The combination of the HomeBuilder stimulus (with 121,363 grant applications reported as at April 9, representing 82% for new builds), low interest rates, and support for first homebuyers has been clear, and commencements should remain strong over the remainder of 2021 before easing as the HomeBuilder grant construction commencement deadline (now at 18-months from contract date) passes.

However, one negative has emerged for this surge in activity, in that pressures are becoming apparent in the areas of labour availability and materials capacity. 

This has the potential to lead to higher building costs, although this is very much a double-edged sword, with the residential building boom proving to be a significant generator of jobs and economic benefits.