Housing construction remains hot…for now
Australia’s economic recovery over the past year has been led by a surging construction sector. In particular, the combination of a booming property market, low interest rates and plenty of government stimulus have put a rocket under housing construction activity.
The most significant of the stimulus measures has been the Homebuilder program, which provided grants to certain owner-occupiers to build or renovate a home. Between June 2020 and April 2021 (when Homebuilder ceased taking applications) private sector housing approvals almost doubled. Not necessarily an expected outcome in an environment where population growth (ie. the driver of demand for houses) has halved. Such is the power of government support!
Data released yesterday by the ABS indicates that residential approvals have pulled back somewhat from these high levels, with the program now closed (though existing applications will still take some time to work through). Overall, the number of dwellings approved fell 6.7% in June, the third consecutive month of declines. Approvals are now 18% below the peak in March 2021. However, they remain elevated compared to historical levels, almost 29% above those in June 2019.
This has provided a solid pipeline of work for builders, though supply chain issues have led to shortages for some materials, which, combined with a skilled worker shortage, is putting some upward pressure on prices.
Chart: Total and private sector housing dwelling approvals
Source: ABS Building Approvals
Home lending data also released yesterday shows a similar trend. Lending for the construction of new dwellings fell 17% in June, continuing its recent downward trend. The fall in construction lending followed a period of rapid growth between June 2020 and February 2021, in which the value of lending rose by almost 160%.
All this came before the lockdown in Sydney kicked into gear. Construction activity in the city was halted for two weeks to help stop the spread, while construction activity in several LGAs remains on hold, and workers from those LGAs are not permitted to leave for work in other areas.
Looking at the broader construction sector, lockdowns will potentially lead to delays and cost blowouts for major projects. Deloitte’s recent Investment Monitor showed that, before the June outbreak, Australia was experiencing one of the biggest building booms in recent memory.
The latest ABS data shows that the value of non-residential building approvals increased by 15% in the first six months of 2021 compared with the final six months of 2020. However, the latest outbreaks and lockdowns threaten major projects, particularly those exposed to COVID, such as shopping centres, offices and hotels.
And as lockdowns and restrictions hit the major cities, country life has become more appealing, shifting the focus for the next wave of housing development activity. Capital cities had a net loss of 11,800 people from internal migration in the first quarter of 2021, the largest quarterly net loss on record since the data series started in 2001.
Sydney and Melbourne saw the largest net loss, around 8,000 each, with most of these migrants moving from the capital to regional areas within each state. Meanwhile Brisbane and Perth had the largest net inflows of internal migrants, largely driven by interstate migrants seeking greener (and COVID-free) pastures.
