Dwelling approvals and real value of construction per capita
The following Bankwest Economic Update refers to figures featured in this PDF.
Residential building approvals look to have bottomed in WA (Figure 1), but that was also the case early last year.
That gave way to another leg down as the lagged effect of the precipitous slowing in WA’s population growth clashed headlong with the very strong dwelling construction that occurred when the state’s population was growing at around three times the clip is now.
But it’s realistic to think that, this time, the turning point is genuine, although the uptick in actual construction when it comes is still likely to be gentle, rather than steep.
When dwelling construction was strong in WA - not coincidentally when highly paid resource construction jobs were drawing tens of thousands of people to WA - it was subdued in the rest of Australia.
But that is no longer the case, as the real value of dwelling construction in WA has fallen by about 35 per cent peak-to-trough so far, while it continues to boom in NSW and Victoria.
Strong population growth in Australia’s two most populous states explains some of the strength in dwelling construction in those states, but the real value of dwelling construction (including alterations and additions) per capita in NSW and Victoria is well above both its 10 and 40-year averages.
Nevertheless, the number of approvals for new dwellings in NSW and Victoria is now falling quite steeply.
Although, just as WA had a false bottom, both NSW and Victoria have seen false summits during their long and substantial cyclical upswings.
NSW and Victoria had some catching up to do after prolonged periods of soft activity, but they have achieved that - and then some.
Conversely, dwelling construction in WA needed to fall steeply to absorb the oversupply of dwellings created when population growth was much stronger.
It is adjusting as it should, seen on the supply side of the equation, in the absence of a sudden acceleration in population growth that would boost demand.
There is no sign of anything more than a gentle and modest acceleration in WA’s population growth and, while it will come in time, it won’t do so at the clip seen at the peak of the past decade.
That is no bad thing, because unmanageable population growth was just one example of where the resource construction boom crowded out the rest of the economy when it was at its most frenetic.