Pete Wargent blogspot

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

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Wednesday, 16 July 2014

Here comes the resi construction boom!

Well, it took a while coming, but here we are!

Australia's residential construction boom is now underway.

The "constrained supply" conspiracy theory has been undermined with dwelling commencements heading for all-time record highs piggy-backing off an uplift in dwelling prices and record low interest rates.

The principle restriction of new supply was due to prices not being high enough to motivate developers or stimulate construction, as well documented frequently on this blog, and indeed by the Reserve Bank itself.

Lo and behold, as prices have risen and interest rates have been cut, dwellings commenced are now increasing very sharply.

Nationally, 27,322 houses were commenced in the quarter, a figure which looks set to threaten record highs.

And units and apartments easily smashed the highest number of commencements in Aussie history, coming in at well over 20,000 for the March quarter (click chart):

The total number of dwelling commencements is up by more than 22% in a year - no constrained supply there.

That's the biggest annual increase in a dozen years since 2002.

I won't upload our entire chart pack here - if you want more details on where we see oversupply risk please email us at 

The main areas of oversupply will be for apartments with the rolling annual number of commencements shattering another record high, now hitting a whopping 74,751 (click chart):

Completions are also tracking at very high levels with 39,830 completions in the quarter, the highest level since the June 2011 quarter.

This is all great news for the Reserve Bank which wants to stimulate construction activity to offset the fall in mining capex.

The value of new residential building increased by a seasonally adjusted 8.5% y/y.

The value of all residential work done (including alterations, additions and conversions) is increasing very rapidly on a seasonally adjusted basis, and is set to hit record highs (click chart):

In terms of all building work done, which includes new resi building, alterations and additions, and non-residential building, the Australian construction boom is being driven by a massive increase in activity in New South Wales.

NSW is a thriving economy and is set to drive forward economic growth over the next couple of years.

Some other locations have economies which are set to stagnate or go backwards in coming years (click chart).

As noted, these are just a few of the interesting points arising from our chart pack, but there's much more of note besides, particularly on the house and apartment commencements at the state level.