Dwelling commencements slow during December 2010 quarter but way up on 2009 volumes

The number of dwellings commenced during 2010 was recorded at 169,428.  This represented an increase of 22.4% over the calendar year, the largest since they rose by 27.2% during 2002.

With almost 170,000 dwelling commencements last year, it was a substantial improvement from around 138,000 commencements in 2009.  On an annual basis, there has been an average of almost 156,000 dwelling commencements during the past 10 years which indicates that commencement in 2010 were 8.7% higher than the decade average an encouraging result given the need to deliver more dwellings.

Interestingly, the rebound over the year is being driven by the unit market despite the fact that developers are reporting that obtaining finance for off-the-plan stock remains difficult due to strict lending criteria.  Year on year, commencements for private sector houses are down -19.0% while private sector unit commencements have increased by 27.9%.  Despite the strong performance for units, it is important to note that over the year they accounted for just 31.7% of dwelling commencements and that house commencements continue to far outweigh that of units.

Despite the positive annual results, commencements appear to now be heading in the wrong direction.  Total commencements fell by -13.0% in the September 2010 quarter and fell a further -5.3% in the December quarter.  During December, private sector house commencements fell by -8.0% while unit approvals increased by 4.2%.

Across the states, each state has recorded an increase in dwelling commencements over the past year.  The greatest increases were recorded in: ACT (39.0%), Vic (29.6%), NSW (28.7%) and WA (21.4%).  The weakest states during 2010 were: Tas (1.7%), SA (8.2%) and Qld and NT (both 8.5%).  During the final quarter of 2010, commencements fell in each state and territory except ACT (74.9%) with the largest fall recorded in NT (-37.2%).

Unfortunately, with the number of dwelling commencements heading in the wrong direction over the past two quarters and January building approvals data particularly weak it seems as if a sustained recovery in commencements is unlikely at least during the first couple of quarters of  2011.  This is likely to be compounded now due to the floods in Qld and parts of NSW and Vic during January.

A sufficient volume of new home commencements is essential to even up the demand and supply equation and to help contain excessive price growth.  The insufficient new supply at a time when our population has been growing so rapidly has placed additional upwards pressure on home values as buyers compete for quality available stock, particularly in well located areas.  Although population growth is slowing, commencements need to catch up as they were insufficient throughout the years when the rate of overseas migration and natural increase was booming.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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5 Responses to Dwelling commencements slow during December 2010 quarter but way up on 2009 volumes

  1. Zaph March 18, 2011 at 2:06 pm #

    It’s good to see dwelling construction finally rising but it’s not enough. Lack of housing and infrastructure is destroying quality of life for millions of Australians. The reserve bank should hike interest rates to slow the property boom but they’re afraid of the political repercussions. They’ve allowed a dangerous two speed economy to threaten the prosperity of millions. If the economy expands by over 3% this year as predicted on AustralianPropertyForum.com then we’ll see Aussie employers creating jobs at a rapid pace. The economy is set to boom and high wage growth must lead to rampant inflation. In turn this leads to strong demand for high migration. The population booms but where are the new roads, houses and other infrastructure? Successive inept governments put infrastructure development on the long finger and that’s why the public feels negatively about high migration, since insufficient rail, housing, road and water result in high migration leading to degraded quality of life for Aussies living here already. Of course, high income means more cash to spend on property, and more money for the banks to lend, where’s the additional housing supply going to come from? Our failed governments must invest for our future, something they fail miserably to do.

    Zaph
    AustralianPropertyForum.com

    • Tim Lawless March 22, 2011 at 3:41 pm #

      The inability for our local, state and federal governments to deliver infrastructure in parallel (or ideally ahead of) with population growth is an ongoing saga. Roads, schools, health care, public transport… the list goes on. This failure to deliver is one of key factors that has compounded the housing affordability problems – affordable land is released in the outskirts of the cities which are generally poorly connected by roads and public transport and often lack the basic essentials.

  2. Jeff March 23, 2011 at 2:02 am #

    Developers would like to do their bit for the economy and society and start more projects but statutory and regulatory fees make them unviable. The increase in fees and charges, and construction costs, have exceeded the rate of growth in end values, mostly. All levels of government need to look at the big picture and long term view, and reduce barriers to entry for developers, take more of the burden of infrastructure development and be prepared to take on more debt for the sake of an increase in housing, which in turn will ease that debt.

    Cameron, you mention ‘private sector housing’. Do you have numbers on public sector housing? Didn’t the government push through a lot of new projects under the stimulus package?

    • Cameron Kusher March 23, 2011 at 1:37 pm #

      Hi Jeff

      We certainly agree with your sentiment and the Government should be doing a lot more to assist with increasing the supply of dwellings and the excessive charges on new development do little to encourage new supply. What is most important is that a large proportion of any new supply is delivered at a price point which is affordable for the average income earner. Again this is just simply not being achieved currently.

      With regards to public sector approvals, all of the data I have quoted in the article is seasonally adjusted whereas the privte sector numbers are raw. Nevertheless, during the quarter public housing commencements for houses and units were recorded at 1,615 down from 3,478 the previous quarter. Given this, public housing accounted for only a fraction of commencements during the quarter.

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