If you really want to get a feel for the extent of the boom in the multi-residential construction sector throughout Australia, one of the best ways would be to look up into the sky.
Had you have done that across the nation, you would have noticed that more than 100 new cranes have been added to city skylines between the June quarter last year to the quarter just past, taking the number of cranes active in our skies from 308 to 427. In the residential sector alone, no fewer than 113 cranes have been added since the September quarter last year.
For those preferring a more accountant-style viewpoint, a glance at the ABS web site reveals that more units, townhouses and apartments were approved for construction in the first six months of this year alone than in the entire calendar year in 2009 by a factor of 30 per cent. If current trends were to be maintained (seasonally adjusted), the nation would smash last year’s record in multi-residential building approvals this year by almost 30 per cent.
Bottom line, a massive boom is on, but opinions vary with regard to how long the party will last. For now at least, the good times look set to roll on. Following what was already a year of boom in 2014/15, the Australian Construction Industry Forum expects the dollar value of construction work done within the non-detached housing segment of the building market to rise by a further 8.7 per cent to go from $19.103 billion to $20.674 billion (almost double its level of five years earlier) and to stay at roughly that level until 2018/19. Even excluding the Gold Coast Commonwealth Games Village, BCI Australia economist and senior analyst Don Smith said, the near term project pipeline remains extremely healthy.
“There still seems to be a lot of intent on the part of developers to go ahead with major apartment projects,” Smith said, referring to BCI data which suggests a whopping dollar value of starts of more than $12 billion over the next five months even taking out the effect of the Games Village. “In that respect, with regard to any slowing down, we can’t really make much more of a comment than that. That’s what the figures tell us.”
By contrast, however, BIS says activity will fall back in 2015/16 from what it terms ‘unsustainable highs’ while HIA expects a decline in starts of 12 per cent in 2015-16 followed by 17 per cent the following year – albeit with the level of commencements remaining at historically elevated levels.
What could cause a slowdown to occur?
At the most basic level, the imbalance of demand and supply which has underpinned the current boom is now subsiding. Having reached a peak of around 108,000 dwellings as of June 2014, BIS Shrapnel reckons the overall national undersupply has slipped to around 85,000 and will be completely erased by 2018.
Then, there is the tightening of finance, which has seen AMP cease lending to investors for off the plan apartments altogether and CBA pull back on lending to development projects. CBA also reportedly now requires 100 percent of pre-sales in response to stricter requirements on the part of the Australian Prudential Regulatory Authority to increase capital adequacy requirements for residential mortgage exposures. While many in the industry say this will mainly impact ‘speculative’ type of lending and is therefore welcome, this will obviously raise the bar in terms of quality of projects that get off the ground.
Then of course, there are developments with regard to regulations surrounding apartment design. In Victoria, for instance, moves to increase minimum apartment sizes would increase the level of challenge for new high-rise projects to stack up from a financial perspective. In New South Wales, by contrast, the overriding by the state Planning Minister of a court ruling which would have seen minimum floor space requirements raised will provide greater certainty for developers.
According to ACIF:
- In booming New South Wales, activity is set to surge from $6 billion in 2013/14 to $7.3 billion in 2015/16 and remain strong until at least 2018/19 on the back of a persistent deficiency of dwellings.
- Already booming activity in Victoria will grow by a further 7.28 per cent in 2015/16 and remain at elevated levels for two years thereafter.
- Activity in Queensland will remain strong but will peak around 2015/16 as the demand supply equilibrium of housing moves toward balance.
- Perhaps surprisingly, strong growth is also expected in Western Australia despite the slowing resource economy, with the dollar value of work done set to grow by 8.7 per cent in 2015/16 and remain at elevated levels thereon after (note: BIS does not agree with this view and says Western Australia will see a decline in activity as its population and economic growth slow considerably.)
- Activity in South Australia will grow from $504 million in 2014/15 to reach a peak of $884 million in 2016/17 before dropping back to more normal levels thereafter (the HIA disagrees with this view and instead sees the value of starts dropping back 10 per cent in 2015/16 before returning to modest growth after that).