Building slowdown
Building activity figures are always quite complex, with lots of moving parts.
Let's see if we can bring some clarity to the key themes, with a particular focus today on new apartments.
Sydney faces down glut
There was a sharp 27 per cent drop in attached dwelling completions for New South Wales in the first quarter of calendar year 2019, as the pace of construction backed off in Sydney.
The number of new attached dwellings under construction in New South Wales has continued to fall each quarter since the end of 2017, from about 69,000 to 62,000 by the end of March 2019.
But that's still a very substantial chunk of completions in the post, which will mean downwards pressure on Sydney rents this year.
CoreLogic's latest quarterly report has Sydney rents down by -2.7 per cent over the year, whereas Melbourne's rental market has been more balanced.
Building activity for apartments and townhouses in Queensland has normalised now, after an eye-popping boom a few years ago.
Mostly these units under construction are pre-sold to investors, so the impacts will mainly be felt in the rentals market.
Meanwhile the unsold inventory in Sydney's established dwelling market is tightening quite sharply, meaning that prices in some parts of the established unit sector are already heading north.
Meanwhile the unsold inventory in Sydney's established dwelling market is tightening quite sharply, meaning that prices in some parts of the established unit sector are already heading north.
Piecing it together the number of dwellings under construction had fallen to about 216,000 by the end of March 2019, from 231,000 a year earlier.
These estimated numbers are a few months out of date, so will be some way lower today in July.
Pipeline shrinking
There's still plenty of building work to complete, then, but there's also far less coming through behind it and the pipeline is shrinking fast.
Attached dwelling starts fell by more than 41 per cent from a year earlier in the March 2019 quarter, and have almost halved since the March 2016 peak.
The smoothed trend chart below shows this most clearly.
And although it hasn't flowed through to the rolling annual figures yet, in New South Wales new unit starts have also halved from their respective quarterly peak.
Finally, there were about 34,000 dwellings approved but not commenced, with almost half of these being located in New South Wales.
The wrap
The key trends then:
Firstly, as expected, there will be stacks of apartment completions in 2019 in Sydney, putting downwards pressure on rents in the short term.
However, the rate of completions has backed off in the face of the glut, while new unit starts in Sydney have collapsed by half, meaning that there will be considerably less supply to come onstream in 2020 and beyond.
Indeed, with population growth ballooning again to +405,000 in 2018 the Reserve Bank's liaison program reported that by the end of the forecast period demand will again be outstripping the growth in the dwelling stock.
Major renovation work also fell -4 per cent in the March quarter, although there was at least some support from non-residential building activity.
With building defects in the news daily it's hard to see a major bounce in new apartment sales, and financial markets are still pricing the need for further support from yet lower interest rates.
Finally, it's wise not to look at these estimates will a false level of precision: the December numbers were subject to some thumping upwards revisions, so it's likely better to observe the trends rather than get too bogged down in the exact quarterly figures.
