One economist is scared. Really scared.
The Kouk (aka Stephen Koukoulas) is one of the grey-beards of Australian economics. He was on Twitter this week bemoaning the “ghastly” building approval numbers we saw in February.
“Building approvals are looking as sick as a dog. We’ve got a 1.9% decline in monthly dwelling approvals, compounding on earlier monthly falls”.
“We are now down 45% in the number of dwelling approvals from the 2021 peak. We are not building enough houses given demand from population growth, from the shortage that is clearly impacting on rents and prices”.
“The Reserve Bank’s interest rate hiking cycle is squeezing property developers out of constructing more dwellings”.
“In fact, if we annualise the monthly numbers, we have currently got a run rate of about 150,000 dwellings when our population is growing at around 600,000”.
“And about 15% to 20% of those dwelling approvals are replacement dwellings. So, you knock down the old place and build a new one, and you don’t actually add to the number of dwellings in the economy.”
He’s not wrong. Those numbers are sick as a dog.
Commonwealth Bank didn’t miss the horror show either. Economist Belinda Allen notes that at this pace, the boom in house prices will run forever:
Australia is not building enough homes. Capacity constraints and a rapid increase in costs are plaguing the residential construction industry.
We are seeing the impact flow through to prices for existing homes and the rental market.
Building approvals fell by 1.9% in February to sit at just 12,520. Private sector house approvals rose by 10.7% in the month.
However, this gain was more than outweighed by a 24.9% fall in private multi-unit approvals.
… In trend terms, rolling annual approvals are at the lowest point since early 2013.
This chart is great way to tell the story. The government’s plan to build 1.2m homes over five years requires us to build 240,000 homes a year.
But you can see from that chart that we’ve only ever reached that kind of run rate (just!) once back in 2016.
So it’s a wildly ambitious target.
But worse than that, current building approvals are heading in exactly the wrong direction, at 160,000 a year and falling sharply.
And as The Kouk notes, that’s a huge problem when the population is growing strongly.
CBA rebases building approvals by looking at building approvals per 1,000 people in the working age population. That shows that on a per person basis, building approvals are at record lows!
That chart is “ghastly”. It’s a total horror show.
You need to increase building approvals by something like 50% to even get back to average, noting that even average saw the housing crisis getting worse.
This is not a picture of a country building its way out of a housing crisis.
No wonder every economist in the country can’t see the end of the current housing boom.
JG.
Bob Kiesa says
You need to increase building approvals by something like 50% to even get back to average, noting that even average saw the housing crisis getting worse.
This last sentance IS the real deamon. It is were ALL building activity must go to for APPROVAL. heavy attention given to this can change the trend very quickly. It needs.to be investgated by reporters and pubished so as to allow the building industry to function as it has in the past. We are being locked down. NOT encouraged.
Please reporters and jounalist get in there and help us.