Capital city exodus. Renovation boom.

Internal migration; Building approvals; Lending finance

What happened? A record 11,845 people left capital cities for regional areas in the March quarter. Council approvals to build new homes fell by 6.7 per cent in June. The value of new loan commitments for housing fell by 1.6 per cent in June from record highs. But renovation loans soared 7.4 per cent to record (19-year) highs.

Implications: Despite falls in the past month, home building and home purchase activity is robust. The main concern is rising home building costs and the lofty prices to purchase new homes. Shifts in the population are fundamental issues of importance for all businesses. Regional home prices continue to be supported by people moving away from capital cities.

The building approvals data has implications for banks, retailers, developers, building and building material companies. Lending finance data has implications for banks, retailers, developers, building and building material companies.

What does it mean?

• The first thing to acknowledge is that today’s building approvals and lending data precede the lockdowns and Covid-19 induced restrictions in place over July and August. But it’s very clear that home building is super-strong at present. In fact the key issues for builders are higher costs and shortages of materials and labour. That was highlighted today in the full-year earnings result from home builder, Tamawood. The chief executive noted “significant shortages of building materials and labour due to COVID-19 impact, and other global issues has negatively impacted us due to delays in construction particularly in the last quarter of the financial year.”

• The increased flow of people leaving cities for the regions and moving from state to state affect a raft of businesses across a broad range of industry sectors. Real estate agents, commercial property operators and builders, toll-road operators, retailers and service providers are amongst those that will be closing studying the latest figures on regional population flows.

• The building and renovation of homes will support the job market and drive the economy over the remainder of 2021, reducing the chances of a recession.

What do you need to know?

Building Approvals – June

• New dwelling approvals over 2021 have been affected by Federal and State home building grants.

• Council approvals to build new homes fell by 6.7 per cent in June after falling 7.6 per cent in May and falling by 5.0 per cent in April. Approvals previously rose 16.0 per cent in March and rose 19.1 per cent in February.

• In June, total house approvals fell by 11.6 per cent (up 43.3 per cent on the year) but apartments were up 3.8 per cent (up 60.1 per cent on the year). Over the past year, 219,273 homes were approved, a 32-month high.

Lending commitments – June (all details in attached tables)

• The value of new loan commitments for housing fell 1.6 per cent in June from record highs to $32.05 billion.

• Owner-occupier loans fell by 2.5 per cent from record highs. But investor loans were up by 0.7 per cent to a 6-year high.

• Renovation loans rose by 7.4 per cent to a record $486.8 million.

• By value, first home buyer loan commitments accounted for 31.2 per cent of all owner-occupier commitments in original terms (excluding refinancing).

• Personal fixed loans fell by 12.6 per cent in June but were up by 16.9 per cent on the year. Business construction loans fell 19.6 per cent in June but loans for property purchase were up 49.2 per cent.

Internal migration – March quarter

• The ABS noted:

• “In the March 2021 quarter, 104,142 people moved interstate. This was 609 (0.6 per cent) less than the number who moved in the previous quarter and 16,370 (19 per cent) more than in the March 2020 quarter.

• The number of interstate movers in the March 2021 quarter was the highest for a March quarter since 1996.

• Capital cities had a net loss of 11,845 people from internal migration, the largest quarterly net loss on record.”

• South Australia posted a record inflow of people from other states and territories while the inflow of people to Western Australia was near 9-year highs.

• The exodus from the city to the regions is being led by baby boomers and Generation X. In part, Covid-19 may be driving retirement plans. But the 25-44 cohort isn’t far behind.

Published by Craig James, Chief Economist, CommSec