The latest ABS data shows that the dwelling approvals for houses and apartments continues to decline, painting a worsening picture for the economic outlook. Whilst last month, there was signs that the rate of decline in the apartment markets was slowing, the June result has reversed the trend with a significant drop of -23% in apartment approvals on last month and a -49% drop on the same month last year. The significant decline takes the annual approval numbers to just under 65,000 units, down -32% on the pcp last year. The housing markets also experienced a strong decline with a -10% drop on last month and a -22% drop on June of last year, taking the total housing approvals over the past 12 month to 72,949, down -12% on the pcp last year. The implications to falling dwelling approvals will flow on to impact the construction industry, employment and to future supply conditions across the markets. It is important therefore to understand the conditions in each city and across the markets as the impacts are more local than national. The following two charts sum up the overall national picture. Houses The decline in approvals is far less pronounced in the detached housing markets, where the change in the annual figure is -12%. As shown in the chart below, Brisbane is down -21%, Melbourne -12%, Sydney -13% and Perth -8%. Each of these cities (with the exception of Perth are still well above the previous low in the cycle in 2013. Perth’s dwelling approvals is lower today than at any point in the last 15 years. Apartments Approvals for detached housing are down -47% nationally for the month and down -32% over the full 12 month period, compared to the previous 12 months. As the chart below shows, Sydney and Melbourne are down – 32% and -37% respectively with Brisbane also down -35% and Perth down -31%. Once again, the declines for Sydney and Melbourne, whilst significant are not yet to the previous low in 2009, though Brisbane and Perth are already at the previous low point, both having started the cyclical decline earlier. Building approvals in the apartment markets are principally driven by the ability to obtain pre-sale contracts that are necessary to obtain development finance. Whilst there are more non banks in the market offering to lend to developers, the challenge is to convince buyers to part with a deposit on an apartment whilst investment lending conditions remain tough and whilst issues such as non compliant cladding, or major building issues such as at Opal Tower and Mascot Towers are able to occur. One or two interest rate cuts are unlikely to address these concerns. We therefore expect building approval data for apartments to continue to fall across over the coming month and as a result, we expect supply conditions to ease into 2020 leading to high occupancy levels, rising residential, improving yields and rising prices into 2021.
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