Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 15 April 2015

Record high dwelling commencements in 2014

Home starts dip in Q4

The number of home starts somewhat disappointingly dipped in the final quarter of 2014 back to 48,125 after the building bonanza in Q3.

Nevertheless 2014 was the strongest year on record for new home commencements at 197,972, representing a thumping 18 per cent increase on the prior year.

The ABS Building Activity release is one of the more involved data series, but also one of the most important for the real estate sector.

Let's step through it in 3 easy parts...

Part 1 - Residential building leads

The value of residential building work done increased by another 2.8 percent in the December 2014 quarter in chain volume measures terms to be an impressive 14.8 per cent higher over the year, a welcome boost for the stuttering Aussie economy.

However, non-residential building has stumbled badly, declining by 3.5 per cent in the quarter and 4 per cent over the calendar year.

The net result was a moderate decline in building activity in the fourth quarter, but a reasonable 5.3 per cent increase over the past year. 

At the state level, it has all been about the two most populous states, with record values of building work done over the past 12 months and a tick shy of $50 billion of building split fairly evenly across New South Wales and Victoria.

Building activity is up moderately in Queensland and Western Australia, but as noted here previously South Australia is getting set for a severe building downturn, a sucker punch for the local economy in Adelaide.

Part 2 - Record high commencements

Commencements were weaker in Q4, but still managed to crunch out a record 197,000 commencements for the 2014 calendar year.

The composition of residential building activity in Australia has changed dramatically, with nearly 84,000 of those commencements being for units and apartments - also a record - but the number of commencements for detached houses now looks peaky, following the trend in building approvals.

At the state level, with its more relaxed planning restrictions Victoria continues to commence building by far and away the the greatest number of houses.

After a dismal decade of under-building, New South Wales is finally getting its act together and building some units and apartments, although the rolling annual total commencements did dip back towards 26,000 from 27,000 in Q3 - and this in a state where the population is growing at more than 106,000 per annum.

I've heard all the arguments about an oversupply of dwellings in Sydney, and they're dross - rents and prices rising prices in tandem over the past half decade should tell you that much. 

Queensland hit a record number of unit commencements at more than 5,300 in Q3, but experienced a significant drop back towards a more sustainable 4,000 in the final quarter of the year.

Part 3 - Completions steadily coming online

Finally, those record levels building approvals we keep raving about are steadily beginning to drip through into dwelling completions. 

That said, total dwelling completions in 2014 remained fewer than 174,000, which is still below most long range forecasts for for underlying demand. 

House completions are also being led by Victoria.

As are unit completions, New South Wales is finally starting to get some traction with 22,179 coming online in 2014. 

Throw in 20,134 houses completed in 2014 and this brings us to a total of 42,313 completions for NSW. 

At an average ~2.5 persons per dwelling this still doesn't quite meet the underlying demand from a recorded population growth of more than 106,000, let alone address the preceding 8 years of under-building.

Much more to be done here.

Queensland achieved an impressive 13,260 unit completions in 2014.

The wrap

Residential building activity has ramped up nicely with dwelling commencements hitting record highs in 2014, in spite of the decline in the fourth quarter.

The composition of dwellings commenced in this cycle has changed considerably with record numbers of unit and apartments to feature on the road ahead.

Unfortunately non-residential building now seems to be heading the other way.