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Home development drops in August, despite Homebuilder stimulus

Home development drops in August, despite Homebuilder stimulus

The number of homes approved to be built across the country continues to fluctuate due to the tumult brought by the coronavirus pandemic, according to new data from the nation’s statistical agency.

The results come one week after a government organisation warned of a fall in the development of hundreds of thousands of homes in the coming years due to the current economic environment.

A fall in momentum

The number of apartments, townhouses and houses approved for development dropped by 1.6 per cent to 13,691 in the month of August, according to the Australian Bureau of Statistics (ABS).

The downturn comes after July approvals surged by 12 per cent, offering some hope of a recovery was underway after rebounding from a sharp dip.

Propping the development numbers up was a rise in freestanding house approvals of 4.8 per cent in August, Daniel Rossi said, Director of Construction Statistics at the ABS, coming off the back of an earlier increase in July of 8.6 per cent.

"The August results indicate increasing demand for detached housing following the relaxation of restrictions in most states and territories,” Mr Rossi said.

“However, approvals for apartments remain weak, at near eight-year lows."

The drop for apartments, villas and townhouses of 11 per cent in August comes after the category experienced one of its largest rebounds of almost 23 per cent a month earlier.

The divergence between house and unit prices was a result of the government’s HomeBuilder scheme, the Housing Industry Association said, which represents the construction and building industry.

“The impact of HomeBuilder is now emerging … and there is a significant divergence between the outlook for detached and multi-unit dwellings,” Angela Lillicrap said, an economist at HIA.

“The small number of multi-unit projects that are gaining approval at this time are likely to have commenced the planning and building approval process years ago.”

The HomeBuilder scheme offers grants of $25,000 to eligible applicants spending at least $150,000 renovation or developing their homes in an effort to stimulate the construction industry during the COVID-19 epidemic. 

Government agency warns of a development fall

There’s concern the current climate -- less renters due to travel bans throttling tourists and international students, the explosion of remote work arrangements, and falls in inner city property values -- could result in fewer multi-dwelling homes being developed due to long term scarring.

The National Housing Finance and Investment Corporation (NHFIC) released a report last week estimating from 129,000 to 232,000 fewer dwellings could be developed within the next three years -- predominantly owed to the drop in migration.

“Large falls in underlying dwelling demand, particularly due to substantial falls in international students, are already putting upward pressure on vacancy rates and downward pressure on rents in inner city suburbs,” NHFIC said.

“If sustained, this could cause a contraction in construction activity that will add to the recessionary forces that are impacting the economy.”

The modelling, featured in the report “COVID-19: Australia’s population and housing demand”, comes as the property market experiences a period of volatility, where city apartments and houses are dropping in value and tens of thousands of people are anticipated to sell their homes as they struggle to repay mortgages.

Building approvals varied wildly across the country

Some states and territories recorded big dips in monthly development approvals, while others reported big jumps.

The biggest drop was experienced by Tasmania of 26.2 per cent, followed by New South Wales at 14.2 per cent and South Australia at 4.8 per cent.

The biggest gains were recorded in Western Australia at 33.8 per cent, followed by Queensland at 8.1 per cent.

Victoria building approvals rose by 1.8 per cent in August, despite the state experiencing the early fatigue of a second lockdown.

The increase in development for some states was attributed to government stimulus, HIA said.

“After a number of years of decline, building approvals in Western Australia (and Queensland) increased,” Ms Lillicrap said

“Other regions are yet to see the pickup in activity due to HomeBuilder. 

“This reflects a range of factors including, longer processing times with local councils and delays in the finalisation of building plans between the customer and builder, and a stronger pipeline of existing work.”

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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