Building approvals data for September 2016 was released earlier this week from the Australian Bureau of Statistics (ABS).  In September, there were 18,945 dwellings approved for construction nationally which was the fewest monthly approvals since November 2015.  Dwelling approvals fell by -8.7% over the month and were -6.4% lower year-on-year.


Looking specifically at house approvals, there were 9,711 houses approved for construction in September 2016.  House approvals were 1.7% higher over the month but -1.9% lower year-on-year.  Monthly house approvals remain above their long-term average of 9,148 approvals each month.  House approvals have consistently been above the long-term average since December 2013 however, they are substantially lower than their historic highs of 12,627 approvals all the way back in August 1988.


In September 2016 there were 9,234 units approved for construction nationally.  This was the fewest unit approvals over a month since December 2015.  Unit approvals were -17.5% lower over the month and are -10.7% lower year-on-year.  Although there has been a pull-back in approvals over the month recently when there has been a big drop in approvals one month they have tended to rebound over the following month.  Keep in mind, because the size of many of the current unit projects, unit approvals tend to be much lumpier than house approvals.  The long-term average number of units approved monthly is 4,490 highlighting that the current unit approval boom is like nothing ever seen before.  In fact, monthly unit approvals have now been above the long-term average each month since April 2012 with approvals in excess of 8,000/month each month since October 2014.




The types of units that are being approved for construction has shifted dramatically over recent years with much more of a focus on high-rise (four storeys or higher) as opposed to townhouse or low-rise style stock.  Based on long-term averages, townhouses are the most popular unit type followed by high-rise and then low-rise units.  Over recent years as the apartment construction boom has ramped-up there has been much more of focus on higher density high-rise development.  The long-term average sits at 1,935 high-rise approvals a month, over the past five years the monthly average has been recorded at 4,400, more than double the long-term average.  The shift to a higher proportion of high-rise approvals highlights a focus on infill apartment development along with a shift in demand for that style of stock.  Furthermore, it also highlights that developers are focused on developing sites to their highest and (sometimes) best use.  While a townhouse may be a much better option if someone can’t afford a house, it is often the case that returns for developers tend to be better when they maximise a sites potential (i.e. a taller building with more units).

While the number of units approved for construction remains lower than its recent peak, they remain elevated in a historical context, particularly with regards to high-rise unit approvals.  With many sounding the warning bells about a potential oversupply of units and the looming settlement risk it will be interesting to see whether the slowing continues or if we see another rebound in approvals next month as we have seen many times over the past few years.