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Wednesday, 10 April 2019

This is where the housing pipeline is drying up... (cranes coming down)

Housing starts crunched

New dwelling commencements crashed 16 per cent lower in the final quarter of 2018, and new attached dwelling commencements imploded by more than 27 per cent. 

Even if we're generous and use the smoothed trend figures, this looks rather like a looming recession; remember there are more than 1 million Aussies employed in construction, and probably about ¾ of them in the residential sector. 

You can click on the graphics to expand them:

The seasonally adjusted figures look plenty worse than this, too, and it's the sharpest drop in about 45 years. 


The new attached dwelling pipeline shrinking fast, then, but where?

The lumpy state level figures are perhaps easiest to visualise as a rolling annual trend.

In New South Wales and Queensland the peak of the new apartment building frenzy was seen nearly three years ago, all the way back in the middle of calendar year 2016.

Victoria's population boom kept the party going for longer, but the path ahead is down almost everywhere now. 

Despite the proven multiplier effect of residential construction, the Reserve Bank appears to maintain a more optimistic view in highlighting the recent strength in employment, but perhaps that's rather more about what's been before than what's coming. 

The Labor Party is well ahead in the latest polling and hopes that its negative gearing policy will give developers confidence to kick off new projects.

New attached dwelling starts collapsing by more than a quarter in Q4 2018 doesn't augur too well in this regard; ultimately interest rates and robust price growth have been the main drivers of the residential construction cycle.

Pipeline shrinking fast

The ABS estimates that the number of dwellings under construction in Australia peaked about 13-15 months ago in the early part of 2018, and declined by about 12,100 in the final quarter of 2018. 

I tend to use these figures as an indicator rather than taking them too literally - there are so many moving parts that it can make the head spin - while it's also worth noting that the most timely estimates relate to the fourth quarter of last year (so they are 'old news' to some extent).

While Queensland and New South Wales saw their attached dwelling pipelines peaking way back in 2016 and 2017 respectively, Victoria caught a second wind in 2018 as half of Footscray was earmarked for residential towers to house Melbourne's burgeoning population (though here too the pipeline is now gradually shrinking). 

Dwelling approvals had already plunged sharply in 2018, while the back end of last calendar year saw a renewed increase in the number of projects approved but not yet commenced, especially in Victoria. 

The wrap: cranes coming down

Overall, while these are old numbers, they confirm the huge drop in housing starts towards the back end of last year as the banking Royal Commission dragged on, while resurgent population growth at around 400,000 per annum will eventually tee up the next housing cycle.

Australia's visa program is tilted towards a younger immigrant intake, while a surge in the natural population increase (births minus deaths)  is also projected as life expectancy increases.

The tabled assumptions in the Budget papers quietly assumed a rate of population growth that could see Australia's population swell to about 30 million over the decade ahead.