- 3 Feb, 2016

Why is the Australian Housing Market Slowing?

Building approvals and apartment purchases are down, which signifies that the Australian market is slowing. This is mainly attributed to a decline in demand.

Building Approval Data

Data signifies that building approvals and apartment sales have declined across Australia, along with new home sales. Many property experts are saying that the housing market is moving at a much slower pace than it was 6-months ago.

According to the latest figures from the Australian Bureau of Statistics (ABS), building approvals declined by 12.7% in November 2015, after experiencing a rise in September and October. The fall, say economists, was much sharper than expected with a 24% decline in town-house and apartment approvals. While multi-storey builds are typically volatile, and may bounce back, economists said that building approvals overall appeared to have peaked. This points to a slow in housing construction over the next 12-months.

National Construction Levels

IBIS World estimate that the Australian construction industry produces approximately $344 billion in annual revenue, and employs an estimated 1,060,000 people across 334,000 businesses. Over the last 5-years, from 2011 to 2016, annual growth in the industry was 1.9%. However, annual growth over 2016 to 2021 is expected to be slower due to market changes.

Consumer spending from rising property prices in Sydney and Melbourne is also said to be diminishing. This could have a negative effect on the housing market. However, despite a fall in home construction, the total number of approvals over 3-months to November 2015 was 7.9% higher than recorded at the same time the previous year.

Detached home approvals stayed relatively consistent, falling by only .6% in November. A sharp fall, however was noted in multi-unit dwellings of 24% in the month.

While a 24% fall in approvals appears substantial, this decline comes after strong increases in September and October. Property investment experts say that this peak in approvals was likely to be the last, as the cycle is now changing into one that is slowing.

The Australian Construction Industry Forum (ACIF) predicts that national declines in construction could shave off between 2 and 4 billion per annum in work demand, over the next 3-years. This is a substantial change and could have an impact on business in the industry, both large and small. This will also have an impact on the economy as it continues to transition away from mining.

The ACIF forecasts include demand for work across residential, non-residential building and engineering construction, as well as 20 work types, for all Australian states and territories. Labour and construction costs are also accounted for.

The shift the industry is currently experiencing is associated with a peak in residential spending and engineering construction due to the mining sector boom. In addition, population growth rates have declined as a result of falls in immigration levels.

However, despite a decline in construction, New South Wales is still anticipated to be the best-placed state for steady and constant construction growth over the next 2-years. Residential construction is also predicted to be the strongest performer of 2016 as demand for new housing continues.

Growth has dwindled the most in Western Australia and in Queensland, which is mainly attributed to a decrease in mining activity. Overall, it is predicted that New South Wales and Victoria, which are classified as major construction states, will realise their greatest growth by 2021. This is mainly attributed to these states having a vast number of projects on-the-go, which are earmarked for completion.

Canberra-Tipped-for-Property-Market-Boom

Major Markets in Australia Likely to Be Oversupplied

With an ever-growing population, property investment advisors are suggesting that while most Australian major cities are likely to have an oversupply of high-rise apartments, this wont be the case in Sydney. Even with the vast number of apartments being constructed, it is expected that demand will be greater than supply. Other markets, such as Brisbane and Perth are anticipated to have a glut of apartments because the supply is substantial.

Strong foreign investor demand could fuel demand, but this may also come too late. If youre looking to buy an apartment, investment advisors suggest that you steer clear of Inner-Melbourne and Brisbane markets as construction here is expected to fall by 50-60% as current levels are unsustainable and are expected to lead to an oversupply.

Activity in private home construction in New South Wales and Victoria is holding at high levels. Home building is expected to continue contributing to economic growth. Growth is estimated to peak at the end of 2016, but activity may decline and be slower during 2017 due to a wane in construction activity.

According to a recent survey conducted to measure consumer confidence in the property industry, levels of confidence remain high, despite the market slowing. In comparison to other industries, the property industry represents 11.5% of Gross Domestic Product (GDP) and is Australias second largest employer. But, even though growth is expected to decline, property is still expected to be a growth driver for the economy.

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