Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Wednesday, 2 April 2014

Dwelling approvals approach record highs

You have to worry sometimes about how data gets reported.

Monthly building approvals are necessarily highly volatile, of course, which is why they are best viewed on a rolling basis.

The ABS reported the monthly figures here today, which fell in the month...a little bit. 

You can hardly call it a miss though: approvals are up by 23% in the past year, 22% for houses and 33% for units/apartments!

In other words, in absolute terms, the trend level of approvals is at the highest level we've seen in nearly two decades, and very close to all-time record highs.

With thanks to the Housing Industry Association (HIA) I don't have to chart the rolling figures, since they are very quick off the mark and already have done so:


Source: ABS, HIA

There have been two schools of thought on this.

1) Some have argued that land prices are too high and there could be no construction recovery.

2) The Reserve Bank argued that there would be construction boom to offset the fall in mining construction.

No doubt in my mind which will prove correct: the RBA.

Looking around Sydney, there are cranes on every street corner at present, and we are into the first phase of the construction boom which will likely last for several years.

Supply

The good news is twofold. 

Firstly, the increasing levels of activity will keep economic activity ticking along nicely, as the economy rebalances away from mining construction and towards mining production.

But what about the risk of apartment oversupply?

Well, in short, that is already playing out in certain locations in Sydney (and, reportedly, Melbourne). 

However, due to the nature of our cities and their planning restrictions, the oversupply in most cases is fairly localised.

In Sydney, for example, I see potential risk areas in the CBD, Mascot Square, Green Square, Zetland, Waterloo and perhaps Central Park. 

You can add to that list other transport hubs and business districts where there are fewer restrictions on the height of apartment blocks: Parramatta, North Sydney, Hornsby, etc.

I don't see this in itself as a major concern for the wider market.

As always, buyers should focus on either houses or units with high land value content (i.e. in boutique blocks) well away from the high rise supply. And the other key rules of buying as ever apply: transport links to the city, amenities, restricted supply yada yada...

Even if Sydney does ever get around to being able to construct 30,000 dwellings per annum, there are four reasons that this need cause little concern for the wider market:

1) 30,000 dwellings represents a very small fraction of the city's dwelling stock - tiny, in fact, at well under 2% if my mental gymnastics are up to scratch (I'm in the departure Lounge at Kingsford Smith);

2) the population is growing at an astonishing pace, somewhere in the region of 65,000 persons per annum, thus absorbing the new stock fairly effectively; and

3) the new stock is often astronomically expensive, thus underpinning the price of established dwellings; and

4) put politely, a lot of it the new stock not very desirable, often due to its rezoned industrial site location and sometimes due to its very small (i.e. shoebox) size.

In short, my best guess is that, like Melbourne, Sydney will end up as a two-speed market, which localised areas of high vacancy rates and anaemic real price growth (as opposed to median price growth).

Meanwhile the stronger sectors of the market will probably remain robust.

If you really want to drill into the future trends for Australian households, the ABS periodically produces some useful data, such as here.