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Wednesday, 10 October 2018

Melbourne holds up building activity

Dwelling starts ease

New seasonally adjusted detached house starts were solid in Q2 2018, holding at above 30,000, while new attached dwelling starts declined by 7 per cent. 

For some texture, marked at Figure 1 is what happened last time the negative gearing rules were quarantined, with quarterly dwelling starts collapsing from above 39,000 to 27,800 before the legislation was quickly reversed in a panic.

With foreign investors now effectively barred from buying by high surcharges and domestic investors unlikely to buy new given the diminished resale market, one might anticipate a similar outcome this time around (click to expand the images).

That new apartment starts held up at historically high levels over the past year is now almost entirely thanks to Melbourne, with Sydney and Brisbane pulling back from their respective peaks. 

Some 39,000 dwellings were parked as approved but not yet commenced, with more than half of these being in New South Wales (mainly units in Sydney). 

Melbourne carries the torch

We can expect to see more apartments and townhouses under construction these days due to higher absolute rates of immigration and maturing capital cities.

Even still, for the period from April to June this year the number of attached dwellings under construction was still tracking at very high levels. 

New South Wales is slowly grinding through its backlog, while for Queensland the construction downturn is now largely complete. 

In Victoria, on the other hand, the number of units under construction continues to rise, mirroring population flows. 

Overall, then, there were still some 227,000 dwellings under construction as at Q2 2018.

These will be nervous times for those that bought off the plan a couple of years ago.

The Sydney and Melbourne markets then were stronger than under today's tighter lending standards.