Housing approvals hanging on, but Victorian powerhouse likely to be thumped
At 170,487 dwelling approvals for the year-ended June, Australia’s residential housing market is hanging on in the midst of the pandemic, but approvals are still 8.3% lower than they were the prior year. After a sustained period of approvals in Victoria providing the impetus to national stability, current conditions and latest data suggest that role has ended.
Whether the HomeBuilder program and the relatively improved circumstances in other states can contribute growth to replace the likely Victorian crunch is open to conjecture, with the performance in New South Wales still significantly less than desired.
First, we can see here that although they are lower than a year earlier, at a national level, dwelling approvals have been reasonably stable month-on-month and on an annualised basis for most of 2020.
Fig 14
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While down 8.3% on a year earlier, we inevitably point to the performance of houses (-6.0% to 104,123 approvals) as the bedrock of any stability that exists in the market. Free-standing houses contributed 61.1% of all approvals over the year. This is clear enough in the chart below, which underscores the stability in the free-standing dwelling approvals market, relative to the other formats on this rolling annual basis.
Fig 15
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There had been some expectations of a housing sector recovery in 2020. That is still possible of course thanks to stimulus, but in the current conditions, few will be disappointed by stability through the second half of 2020, if that can be achieved.
In June, that looked a likely prospect, but then the coronavirus made clear its sole purpose and its literal virulence, infecting Victoria and dragging the state into renewed and more aggressive lockdowns. The implications for dwelling approvals and therefore future building activity in Victoria are very serious, and not much less serious for the national housing economy.
As the chart shows, on a rolling annual basis, Victoria – shown in burnt orange – has been the stable force in the domestic housing economy for some time, accounting for around 35% of total approvals (59,888) over the year-ended June.
Fig 16
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Given the current lockdown in Victoria has limited construction and residential house building activity it is unclear how this will affect housing approvals in coming month.
Fig 17
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The green line in the chart shows annualised approvals of all formats of housing. Victoria had recovered faster than other states and even until June was not seeing dramatic declines. By way of contrast, total dwelling approvals in the nation’s most populous state, New South Wales, have been in more or less constant decline since late 2018.
Fig 18
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Unlike Victoria, where stability was built from free-standing houses, in New South Wales, decline was across the board and included a more than 20% fall in free-standing dwelling approvals over the year-ended June 2020, as the chart here emphasises. However, this chart also shows that just two years ago, approvals of 4+ Storey Apartments were the rival of free-standing houses in New South Wales, but they have subsequently crashed.
Fig 19
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The national housing sector may not be able to rely on free-standing housing recovery in New South Wales, to replace the potential Victorian crunch. We need also to consider Queensland in this mix.
Total dwelling approvals in Queensland have fallen 11.6% over the year-ended June, with free-standing dwelling approvals down 7.1% to 19,934 units. That amounts to more than 68% of the total 29,152 approvals over the year. That is good for houses and for the wood products sector, but the reality is that at 30,000, recovery in Queensland approvals would need to be massive if it is to replace the possible Victorian losses.
Fig 20
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The situation with Queensland is similar across the country. Smaller populations will not sustain a national recovery, though they are fundamental to local economies. For the sake of pretty much everything right now, we need to be focussed on doing all the right things to get on top of the virus and ease restrictions, and commence the journey to recovery as soon as possible.
