Forget The Hype
House and Townhouse Approvals are Still Growing
The headlines tell us that housing approvals are declining. We are reminded constantly that all booms must come to an end. And of course, we are invited every day to confuse high property prices and housing affordability with demand for new dwellings.
It is true that in the most recent year, total housing approvals declined 5.1% for the prior year. It is also true that Australia remains firmly in the middle of its longest running and largest ever housing boom, that despite the pronouncements, shows only limited signs it is coming to an end.
And if we want evidence that housing affordability issues are not flowing through into demand for new houses, we have only to look at approvals of houses and townhouses. In 2017, combined approvals of them rose 1.4%.
We can see in the chart below that combined, house and townhouse approvals are continuing to grow, albeit slowly. Since the housing boom began in mid-2013, together they have grown almost 5% per year, even taking into account the softer growth of 2017.
However, we can also see that approvals of Flats of 4+ Storeys (mainly high-rise apartments) has well and truly peaked and in fact, declined quite sharply in 2017.
While the most recent boom included all sectors – although we have almost reached the point where it is not worthwhile recording approvals of flats of 1 to 3 storeys – it peaked because of high-rise apartments, investment and market speculation.
The growth in houses and townhouses was solid, but by no means spectacular, and that is very good news, because it means the market for these lower rise dwellings never got overheated. That in part, is why approvals are continuing to grow.
The main reason approvals have grown, and will continue to grow, is because of unmet demand, from an ever-growing Australian population. Rather than think of population in terms of people, lets have a look at it from the perspective of houses.
What the chart below shows is that the number of households are conservatively estimated to grow solidly over the next decade, from around 9.6 million total dwellings in 2018 to almost 11.4 million dwellings in 2028. Of this total approximately 1.8 million additional dwellings over the next decade, the estimate is that ‘Family Households’ will account for 1.150 million, or an average of about 115,000 new dwellings per year. While this is solid growth, it remains unspectacular, and therefore, more predictable.
This is all good news for frame and truss manufacturers, and in fact, for the entire national timber supply chain. The simple reality is that by far and away, timber is the framing material of choice for free-standing houses and townhouses. We can see this in the final chart, which demonstrates the extent to which timber dominates framing of houses in almost all jurisdictions across Australia.
Source: Australian Construction Lights
The long and the short of the current housing market is that stable and growing approvals of new houses and townhouses flows directly into demand for wood products, especially timber frames, and trusses.
Tim Woods is Managing Director of IndustryEdge, the leading wood products, forestry and pulp and paper market analysts in Australia. The company publishes the monthly Wood Market Edge, a detailed analysis of forestry and wood product markets. For more information, go to www.industryedge.com.au