Impending housing undersupply: Weekly market wrap with Sam DodimeadBack
Impending housing undersupply
The Housing Industry Association (HIA) recently released figures forecasting sharp declines in residential building activity during 2020/21 due to COVID-19. The pandemic may have accelerated falls in construction activity; however, Australian Bureau of Statistics (ABS) data shows construction activity had been declining throughout 2019. Activity peaked at 8,286 dwellings under construction in December 2018, reducing by 13.67% Year on Year (YoY) to December 2019.
“HIA has revised its forecasts for the housing industry in light of the COVID-19 pandemic and now expects housing starts in the ACT to be down by 28.4% in this financial year and to decline by a further 29.4% in 2020/21,” said HIA’s regional director, Greg Weller.
It has been obvious for some time construction activity in Canberra was trending downward and would hit a period of sharp decline without any external downward pressure. ABS data reports the various stages of the construction pipeline, providing figures for total number of new dwellings approved, new dwelling commencements, dwellings under construction and completions.
Looking at the very start of the supply chain, the ACT Government has had a high failure rate selling multi-unit development sites for the last 24 months. Sites failing to sell at the most recent Suburban Land Agency auction have potential yields of up to 1,540 dwellings. In the Gungahlin suburb of Taylor, nine sites with a maximum potential yield of 371 dwellings are set to be auctioned for a second time, having previously passed in or developers failing to settle on their purchase. The sites in Taylor have a mandatory requirement to deliver 57 affordable homes, illustrating the unintended consequence of failing to adjust reserve prices to meet market conditions.
Total number of dwelling approvals and new dwelling commencements are the next stages of the supply chain. In the March quarter 2020, there were 965 new dwellings approved in the ACT, which was the first time since the December quarter 2017 that there were fewer than 1,000 new dwellings approved. The total number of new dwellings approved was down 26.47% YoY to March 2020. Dwelling commencements have reduced significantly, falling from 6,409 during 2018 to 4,315 during 2019. This shows that from site acquisition through to commencing a project, there is a significant drop in potential supply.
Dwelling units completed increased from 2,652 during 2018 to 4,260 during 2019. Upward trending completions show projects are finishing; however, downward trending commencements and total number of dwellings under construction show an overall decline in activity.
Canberra has been a standout performer globally, rapidly squashing the COVID-19 transmission curve. It would appear likely this would enhance our liveability credentials to people in cities who have had high infection and death rates or enacted more drastic measures of containment. This may accelerate relocation plans once global travel resumes and accelerate our trajectory toward a critical undersupply of new housing stock.
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