Australia | Jul 20 2015
– Residential starts peaking
– Apartments to lead decline
– Non-res to provide some offset
By Greg Peel
Strong growth in the past few years has seen total dwelling starts in Australia reach to just over 210,000 in 2014-15 to mark a record all-time high, according to analysis conducted by research group BIS Shrapnel. From this level, activity is expected to begin trending down over the next three years, led by the previously surging apartment segment.
A sizeable deficiency in dwelling stock, coupled with historically low interest rates, drove building activity to its highs, but the market will shift into mild oversupply by 2018. Construction activity remains strong but population growth will slow, gradually eroding deficiency in key markets.
Net overseas migration is expected to continue its downward trend, easing in response to lower economic and employment growth. Building activity is estimated to have pushed above the underlying demand trend in 2014-15 for the first time since 2011. BIS Shrapnel estimates deficiency of building stock hit a peak in June 2014 of 108,000, but at June 2015 this had fallen back to 85,000.
Investors and upgraders/downsizers will continue to provide enough momentum to sustain construction at historical levels, resulting in deficiency being satisfied by 2018. The fall from the current peak will mostly be felt in the apartment segment, BIS Shrapnel suggests. Detached houses, which have seen a late run in the cycle, will prove more resilient, holding up until 2015-16 before beginning a more subdued decline.
From 2014-15, only NSW is expected to maintain current growth into 2015-16 on the back of a strengthening economy and a persistent deficiency of dwellings. Queensland will remain relatively flat around current levels as its market moves into balance, but Victoria will see a 7% decline, with Melbourne having seen over-building relative to demand. Western Australia is suffering a sharp slowing in population growth at the end of the mining and thus will suffer a 13% decline.
As residential construction surged over 2014-15, non-residential construction fell by 13%, BIS Shrapnel estimates. However non-res is expected to bounce back by 10%-plus in 2015-16. Growth will be driven by the commercial and industrial sectors (+17%) with retail in particular performing well (+29%). The overall profile for non-res out to 2018 nevertheless remains relatively flat, albeit typically lumpy, given economic conditions will remain subdued and it will take time for capacity constraints to build to underpin a new round of development.
BIS Shrapnel thus sees further 6% improvement in 2016-17 before a slip-back in 2017-18. Thereafter, a healthy upward trend should return as improved economic conditions begin to set in.
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