Housing supply to remain weak in 2011

Dwelling commencements across the country have decreased significantly over the last quarter to September 2010. The latest figures released by the ABS show a -13.2% decline (seasonally adjusted)  in the number of dwelling commencements across the country over the September quarter however, they are recorded 12.4% higher than the same time last year.

Housing supply, or the lack of it, remains a pressing issue across the key metro areas of Australia.  It is looking like the June quarter of 2010 was the peak in the housing construction cycle which has been relatively short lived.  Looking towards 2011 it is looking more likely that any fix to the housing supply problem is not on the horizon.

graph

State by state:

Canberra has recorded the most significant fall with the number of dwelling commencements falling by more than -30% over the quarter however, the year-on-year figures still show that the city is slightly above commencements recorded last year.

Queensland recorded the second most significant fall with the number of dwelling commencements falling by more than -25% over the quarter. The year-on-year change shows that Queensland is the worst performer for dwelling starts across the country, currently recording starts -8.0% below last years’ figures.

Although the Northern Territory records the lowest number of dwelling commencements, the region has experienced the most significant increase. The quarterly figures show commencements have increased by 27.6%, whilst the region is up 33.2% compared to the September quarter in 2009 (note that NT dwelling starts figures are typically much more volatile than the States).

Victoria has recorded the most dwelling commencements across the country and has recorded minimal increase of 1.5%, which is still markedly better than the national figures. The state’s year-on-year figures show the greatest increase with commencements up 34.2% which is the highest increase across the country.

New South Wales reflects the national figures with the quarterly commencements down -14.5% however, the year-on-year figures are still up 13.6%. South Australia has recorded somewhat similar results with the quarterly figures down -5.7% however, the state is up 13.6% compared to the same time last year.

table

The Global Financial Crisis caused dwelling commencements to decline rapidly, whilst the government stimulus packages helped commencements rebound quickly, perhaps too quickly. As new residential building stimulus has come to a halt, it would seem these effects are beginning to ripple through with the current recorded level of national dwelling commencements now being in line with figures recorded during the June quarter of 2008. Whilst the current level of dwelling commencements is in line with the long term average, the figures are out of line with population growth.  If this downward trend continues, a lack of new housing stock entering the market is likely to continue at the very least place a floor under home prices in the metro markets.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

Connect with CoreLogic

Enter your email address to subscribe to our e-newsletter, and have new posts delivered via email. You can also connect with CoreLogic on social media.

3 Responses to Housing supply to remain weak in 2011

  1. Dale Morris January 21, 2011 at 7:37 pm #

    he HIA says Australia had 13,158 building approvals for the month of November, which was down on Oct 2010 by 4.2% which was already down 9.9% on the year before.The point being is that this is a low number so this would work out to 158,000… housing starts for a 12 …month period? ….

    That is enough housing for 411,000 additional people @ Australia’s current rate of 2.6 people per household? ….

    So what was Australia’s population growth & are we building enough?

    In 2010 there were 297,878 babies born & there were 144,989 Deaths giving an organic population growth of … 152,889

    But let’s not forget migrant intake for 2010 which was 213,178

    {BTW Migrant numbers are forecast to fall to under 150,000 in 2011 but let’s work with this inflated number}….

    So in 2010 Australia had a nett population gain including migrants of…. 366,067!!!

    ( This dose not even take into account people who migrate away from Australia estimated at 80,000 – 100,000)

    However in the past 12 months we built new accommodation to house 411,000 people!!! ….

    This was a surplus of 17,282 houses to accommodate an additional 44,933 people that will not be required….

    Can someone show me where the shortage is???

    A little known fact is that this has been happening for many years now right under investor’s noses who have been bluffed by property spruikers into thinking there is a shortage?…. There isn’t any!!!

    • Tim Lawless January 27, 2011 at 1:43 pm #

      Thanks for your response Dale.

      The latest population data from the ABS is up to June 2010 and it shows a population increase over the 12 months of 377,100 new residents (161,500 due to natural increase and 215,600 due to net overseas migration). You are right, population growth trends are changing and net migration into Australia is slowing quite rapidly. This might change going forward as there is already a great deal of debate about reversing the migration cuts to allow for the improved economic conditions and low rate of unemployment.

      A really simplistic way to measure the demand for housing is to divide that growth figure by 2.6 which was the average household size back in 2006 when the ABS last conducted their Census of Population and Housing. That gives a housing demand figure of about 145,000 new dwellings based on the June population growth figure.

      To provide a more accurate housing demand assessment we need to include in a whole bunch of other factors – for example the Reserve Bank estimates that demolitions and second homes account for about 23% of new dwelling construction requirements (Have a look at the ‘Are we building enough dwellings’ section of Ric Battelino’s speech here: http://www.rba.gov.au/speeches/2009/sp-dg-251109.html

      Also, we need to use some caution in using dwelling approval figures. Not all dwellings that are approved actually proceed. Dwelling commencements are generally a better proxy for supply additions to the market. Over the year to September 2010 the ABS estimates that there were 165,605 new dwellings which commenced construction. We should also note that the recent commencement figures have been inflated somewhat due to higher than normal public housing commencements within the ‘other residential buildings’ category.

      So based on the above a new housing demand estimate would be circa 145,000 new dwellings (population growth divided by avg household size) – this might be a bit conservative if the average household size figure has continued to trend downwards post 2006 Census.

      Factoring in demolitions and second homes into the new supply figure (based on the RBA estimates and latest ABS commencements figure) may give a more accurate assessment of effective new supply levels. Removing the affect of demolitions and second home consumption based on the RBA estimates suggests that over the year to September 2010 there was an effective supply introduction of about 127,400 (based on 165,505 new homes commenced over the year to Sep 2010 less the 23% for demolitions and second homes).

      Calculating the supply and demand scenario across the Australian market place isn’t an easy task and is far from an exact science. There are a wide variety of assumptions that some analysts will or won’t include in their assessments. The National Housing Supply Council which is part of the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA), arguably provides the most thorough assessment of the housing supply issues.

Trackbacks/Pingbacks

  1. Housing supply to remain weak in 2011 | Northern Adelaide Real Estate - December 21, 2010

    […] Continued here: Housing supply to remain weak in 2011 […]

Leave a Reply

Notify me of followup comments via e-mail. You can also subscribe without commenting.