Supply, demand and construction out of whack with dwelling commencements: RP Data report

feature-undeveloped-200New figures have confirmed that housing supply continues to fall away as demand ramps up while the number of dwelling starts over the June quarter this year was 13% below the decade average. Simultaneously, national population growth in March was 49% higher than the decade average.

The ABS data confirmed that the total number of dwelling commencements fell by 11.4 % over the year to June 2012. Based on the June data, the number of housing starts was 13.4 % lower than the 10-year average.

The results highlight just how weak the housing construction sector has been since building activity started to fall in early 2010.

Across all housing construction types, detached houses proved to be the weakest performers, where the ABS recorded that construction began on just 20,786 houses over the June quarter of 2012 (seasonally adjusted), a level confirmed as being approximately 21% lower than the decade average of 26,189 starts.

In contrast, unit commencements over the June quarter were tracking almost 3% higher than the 10-year average despite a recent slowdown from a historic high. Victoria, where new home building starts have led the nation since 2008, has shown a sharp slowdown in housing construction.

Between the beginning of 2008 and the end of March 2012, Victoria accounted for one-third of Australia’s housing starts; this is despite Victoria’s population growth (i.e. housing demand) comprising a lower 25% of the nation’s overall population increase. The number of dwelling starts fell by 18.4% between June 2011 and June 2012. However, housing construction in Victoria remains 6% higher than the decade average.


Over the 2011/12 financial year, 60% of Victoria’s housing starts were for detached houses while the remaining 40% of dwelling starts fell into the ‘other’ category, which is predominantly characterised as unit dwellings. Before 2008 the proportion of housing starts for houses averaged around 75%. The difference in the proportion of dwelling commencements for houses and ‘other’ dwellings more recently can be most likely attributed to a surge in inner city unit development.

Victoria’s surge in dwelling commencements began during the June quarter of 2009, with the trend in housing construction breaking ranks with the other major states at this time. New South Wales and Queensland also saw a sharp increase in dwelling construction at this time, but nowhere near the magnitude of what was recorded in Victoria (see graph 1) Even a year earlier it can be seen that the Victorian trend was quite different, with dwelling construction holding firm during the GFC while home building across the other major states fell away.


Based on the ABS data, it can be observed that Victoria’s dwelling construction has been much more responsive to the housing market cycle rather than what has traditionally been viewed as the key determinant of housing demand (i.e. population growth).

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