Residential building approvals indicate low-supply future

Posted by Luke Graham

As you might expect, the number of residential building approvals have generally trended lower since the pandemic ramped up after March. Prior to that, we had actually seen an upswing (particularly in NSW and Victoria). This was likely in anticipation of the transition we expected to see in the market this year. Rental vacancies were trending downward, lending conditions were markedly improving, and confidence was returning to the market.

Even before the pandemic, the cycle of new housing supply was in a low-supply phase, following a period of high residential construction activity on the east coast in the mid-to-late 2010s. Some areas within capital city markets experienced temporary periods of high supply, making it more difficult to attain favourable valuations and command strong rental premiums. Almost across the board, those markets have normalised—some better than others.

The positive news here for current property investors is that the lull in today’s volume of building approvals will influence the future balance of supply and demand in their favour. Since population growth is expected to take a hit while our borders remain closed, low building approval numbers will be a mitigating factor. On the other hand, low building approvals are not good for our economy because construction is one of Australia’s largest employers.

Posted by Luke Graham, on 7th Sep 2020