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Record low dwelling commencements to push prices even higher
Record low dwelling commencements

The latest dwelling commencement data sets make for woeful reading for anyone waiting and watching for property prices to hopefully fall.

While trying to time the market is never a sensible thing to try to do, all of the major indicators point to a period of prolonged upward price pressure because of this serious demand and supply imbalance.

Just consider that the trend number of new dwelling commenced has fallen a whopping 15 per cent over the year to December 2023, plus, the quarterly number of commencements – at just 37,207 – is the lowest recorded for years, according to the Australian Bureau of Statistics (ABS).

In fact, the ABS Building Activity data-set only goes back to December quarter 2015, but compared to that period, dwelling commencements have fallen a staggering 59 per cent!!

Don’t even get me started on how much our national population has grown in that same period… actually it’s more than three million people!!

dwellings commenced

How did this happen?

Well, I’m happy that you asked! 

As I have written, and spoken about, many times before there has been a plethora of poor policy decisions at state and federal levels that have fiddled with the equilibrium of real estate supply and demand.

We have seen levers pulled and pushed to discourage or encourage construction activity, depending on a variety of economic factors at the time.

One only needs to think of the HomeBuilder scheme announced at the start of the pandemic for a recent example of what I’m talking about here, which you can also see in action in the above graph from the ABS.

Fundamentally, there are a number of issues currently dragging down building activity, which unfortunately won’t be remedied any time soon.

  • Building Approvals
    Building approvals have hit a decade low, indicating a significant slowdown in new construction projects. This shortfall in approvals directly translates to a reduced number of completed dwellings, exacerbating the housing shortage.
  • Construction Costs
    Rising construction costs, as reported by the National Australia Bank, pose a major obstacle to new housing developments. Higher costs deter developers from initiating new projects, further limiting the supply of available homes. 
  • Planning Delays
    Lengthy approval processes delay the commencement of construction projects, prolonging the time it takes for new dwellings to become available in the market. These delays contribute to the overall shortage of housing stock.
  • Regional Disparities
    Disparities in housing supply between metropolitan areas and regional areas persist, as illustrated by data from the New South Wales Department of Planning. This imbalance exacerbates housing shortages in high-demand regions while under-utilizing housing potential in others.

To put it simply when there is not enough new dwelling stock supply available, then the pricing of existing stock is pushed even higher.

We are in a sustained period where there is more demand than supply of properties for sale, which is why we are seeing prices rise in myriad locations around the country.

Now this doesn’t mean that there aren’t solid investment prospects out there – especially because we have a holistic national view when it comes to identifying the very best areas for property investment.

Rather, what it does mean is that those prospective property investors sitting on the fence, or even existing investors debating about adding to their portfolios, are going to be faced with higher prices when they finally do decide to take action.

Image credit: DepositPhotos

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