The latest building activity data released by the Australian Bureau of
Statistics (ABS) shows a strong correlation between the recent boom in dwelling
approvals and the record dwelling commencements in the March quarter of this
The high dwelling approvals over the first quarter of 2014 resulted in an
8.7 per cent lift in overall housing market activity; 22.2 per cent higher over
the year. Correspondingly, the 48,964 dwelling commencements over the March
2014 quarter was the highest on record.
Observing that there has been a significant lift in housing construction
activity over the past two years, RP Data research analyst Cameron Kusher
comments that there is a strong correlation between dwelling approvals and
dwelling commencements with approvals flowing rapidly through to commencement
activity. This benefits the economy through increased spending for materials
According to the ABS results, house approvals rose by 8.4 per cent over
the quarter and house commencements were up 12.8 per cent. Increase over the
past 12 months across both approvals and units, has been almost at par with 21.4
per cent for approvals and 22.6 per cent for commencements.
However, there has historically been a strong correlation between the
two key indicators of housing market conditions. Unit approvals in the most
recent quarter fell by -6.9 per cent compared to a 4.2 per cent increase in
unit commencements. Compared to 12 months ago, unit approvals are 35.4 per cent
higher, whereas unit commencements have increased by 27.1 per cent. Unit
approvals are at near-to record high levels (despite the fall over the most
recent quarter) while unit commencements were at their highest level ever over
the March 2014 quarter.
Mr Kusher notes that the construction of a single house is much less
risky than construction of a multi-unit dwelling because the latter requires a
level of presales before construction commences and potentially faces financing
issues as construction progresses.
Comparing house and unit approvals with house and unit completions, Mr
Kusher observes that house completions often reach, or at least come close to
the previous peaks in house approvals, while the same can’t be said for units
where units approved for construction will often make it to commencement but
are more likely than houses to ultimately not be completed.
Over the 10 years to March 2014, there have been 1,043,641 house
approvals and 575,672 unit approvals. Over the same period there have been
1,021,410 house completions and 493,944 unit completions. With 98% of houses
approved having been completed compared to 86% of units approved, it is obvious
that not all the unit approvals flowing through currently will ultimately end
up being completed.