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Residential Construction Rates in Australia Still Strong, But The Pipeline is Drying Up


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According to the latest update from the Ai Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI) the industry continues to expand, with the results showing the fastest pace of overall industry growth since the survey began in 2005.

Commercial construction and house building in particular were earmarked as key drivers of growth in July. Whilst commercial construction saw the highest rate of expansion in twelve years, house building has recorded the fastest pace of growth in three and a half years.

We can expect a rapid downturn in both housebuilding and apartment building within the next twelve months...

However, recent reports have suggested a dampening in residential construction with many onlookers arguing that we have past the peak and can expect a rapid downturn in both housebuilding and apartment building within the next twelve months.

Indeed, the latest Building in Australia forecast from BIS Oxford Economics has forecast the number of dwelling build starts will drop from a peak of 230,000 down to 160,000 within three years. The decline only looks worse if you consider the high-rise apartment sector, which is expected to slump by almost 50 per cent.


Graph showing BIS Oxford Economics forecasts of dwelling commencements, falling from the start of 2017.


Number of new dwelling commencements, source: ABS, BIS Oxford Economics

Jobsite spoke to Malcolm Gunning, Director and President of the Real Estate Institute of Australia, in an exclusive interview to hear about what they’re seeing from both an agent’s perspective, and from their insight into the level of approvals being lodged at the start of the process.

“With any sort of development there is a twelve-month lag. The number of new properties hitting the market now is the result of a pipeline that takes up to three years from approval to completion. It takes time for a battle ship to change direction, it can’t do it immediately.”

“We expect to see the figures start to head south around later this year,” Mr Gunning said.

Mr Gunning pointed to stagnation and decline in the number of development approvals as an indication that the current state of expansion in residential construction is set to change in the near future.

Whilst Australian building approvals picked up in June, they remain down compared to the previous year. According to the ABS, the new building approvals in June were down 14.9% on June 2016, standing at 17,463.

“We expect to see the figures start to head south around later this year,” Mr Gunning said.

According to Mr Gunning, a key factor in the recent decline in approvals is the change in lending rules, shifting the level of investment being poured into residential construction. Indeed, increased restrictions imposed by the Australian Prudential Regulation Authority (APRA) have been seen to limit the level of foreign investment, in addition to stricter lending practices having an impact on local investors.

 “The development approvals, particularly in Sydney and Melbourne, have been significantly less over the last few years and this is down to tighter lending rules”, Mr Gunning said.

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