‘Historic development’ stands out in ABS property data

According to the dwelling commencement data for the quarter, houses declined by 7.6 per cent and units declined by 26.8 per cent, the largest quarterly decline since September 1974.

Yet, these figures are still above the long-term average.

The more interesting data, according to Mr Kusher, was the rise and fall of apartment starts, driven mostly by Sydney, Melbourne and Queensland.

“Over the past five years, every state and territory has seen unit commencements reach historic high levels, demonstrating a clear shift towards higher-density development,” Mr Kusher said.

“More recently, as the housing market has turned and values have started to fall, we can see there is a reduced preparedness of developers to commence new projects.

“We would expect that commencements, particularly for units, are likely to continue to trend lower over the coming quarters as housing values continue to record value falls, finance remains tight, and both domestic and foreign investors remain light on the ground.”

The ABS data also provided a breakdown of annual unit starts by the height of the building.

“While the number of commencements has climbed significantly over recent years, it is interesting to note that commencements of units in a [one-three] storey block has been relatively steady,” Mr Kusher said.

“Anecdotally, the demand/supply ratio of medium-density dwellings remains much healthier relative to high-density products.”

Looking at taller buildings, Mr Kusher noted a “significant” increase in starts of taller buildings in the last few years as commencements start to ease.

“This reflects both the unit construction boom and also the fact that as the cost of acquiring sites has increased, developers have sought approvals for taller buildings in an effort to maximise their yield and to recoup acquisition costs and maximise profits,” he said.

“With dwelling commencements expected to continue to fall, the decline doesn’t negate the fact that many developers have paid high prices to acquire sites.

“As a result, we would expect that despite an expectation of fewer commencements going forward, those projects that do commence will largely be taller apartment projects.”

Mr Kusher concluded that larger development projects are difficult for developers to make a profit from when there are more units to sell and predicted that as values decline, so too will dwelling starts.