Dwelling commencements recorded a significant slowdown over the December quarter, according to the Australian Bureau of Statistics’ (ABS) quarterly building activity data for December.
House starts dropped by 7.6% to their lowest level (27,088) since March 2017. Unit commencements logged a much larger decline of 26.8% to 19,134 commencements —the fewest over a quarter since September 2013 and the largest quarterly decline in commencements since September 1974, when they decreased by 32.5%.
Both house and unit commencements, though, remained above their long-term average despite the slides.
The movement in apartment starts —their increase and their recent fall— was identified as the most notable change in the landscape of dwelling commencements over recent years, said CoreLogic.
The property information provider also found that the climb in higher-density construction has primarily been driven by the capital cities of the three most populous states.
“Over the past five years, every state and territory has seen unit commencements reach historic- high levels, demonstrating a clear shift towards higher density development (that isn’t to say that detached housing construction hasn’t also climbed significantly over the period). More recently, as the housing market has turned and values have started to fall, we can see there is a reduced preparedness of developers to commence new projects,” CoreLogic Research Analyst Cameron Kusher said.
Kusher forecasted that unit commencements would continue to record more declines over the coming quarters as falls in housing values persist, finance remains tight, and both domestic and foreign investors remain light on the ground.
ABS showed that the number of annual unit commencements had risen significantly over recent years. However, commencements of units in a one to three storey block have been relatively steady. The demand/supply ratio of medium density dwellings, meanwhile, remains much healthier than high-density products.
Commencements of taller buildings substantially rose over recent years but are now beginning to ease. The shift is a reflection of both the unit construction boom and the increase in the cost of acquiring sites. Developers have sought approvals for taller buildings to maximise their yield and to recoup acquisition costs and maximise profits, according to CoreLogic.
“With dwelling commencements expected to continue to fall, the decline doesn’t negate the fact that many developers have paid high prices to acquire sites. As a result, we would expect that despite an expectation of fewer commencements going forward, those projects that do commence will largely be taller apartment projects,” Kusher said.
CoreLogic said, though, that there is a higher risk for developers when it comes to larger projects. It is also more difficult to achieve sufficient presales to commence a project when there are more units to sell. “In order to maintain profitability of projects, it is highly likely that as values continue to decline that dwelling commencements will continue to fall,” Kusher said.