The Renovators

Regional building approvals

What happened? The Australian Bureau of Statistics (ABS) has released regional data on council building approvals for the 2020/21 financial year. Approvals for alterations and additions of homes hit a record monthly high in April and also hit record highs for the full financial year. Renovation approvals rose by 30.7 per cent in 2020/21. Fastest growth occurred in the ACT (up 58 per cent) and Tasmania (up 45.7 per cent). Fastest regional growth was in Ipswich in Queensland (up 378.6 per cent), ahead of Central Queensland (up 207.3 per cent).

Implications: Companies dependent on residential building are experiencing record demand for services. Activity will stay solid for the remainder of 2021 as there has been some rationing of work due to high demand.

Data on building approvals is a key forward-looking gauge of residential building activity and provides guidance for housing companies, building material companies and related services including retailers.

What do the figures show and what do they mean?

• A consequence of the Covid-19 pandemic has been the need to lock down communities to prevent the spread of the virus. As a result Aussies have spent more time at home – working and entertaining themselves. This has thrown the spotlight on the suitability of peoples’ housing arrangements to relax, work and play. As a result there has been an upsurge in demand for hardware, homewares, elrectrical goods and building services. Loans to renovate homes hit 19-year highs in June, highlighting the attractive conditions for financial services firms.

• Over 2020/21, council approvals to make alterations or additions to homes totalled a record $11 billion, up 30.7 per cent on the year. These renovations could take a number of forms such as home extension, addition of a stand-alone structure or second-floor addition. And, clearly, given that many renovations don’t require council approval, the figure understates the degree of activity.

Across Australia, total dwelling approvals totalled 219,273 in 2020/21 – the highest result for four financial years and up 26.3 per cent on the year.

• By region, the highest value of renovation activity in 2020/21 occurred in the Melbourne inner city SA4 region ($700.9 million), ahead of North Sydney & Hornsby in NSW ($470.2 million) and the Eastern Suburbs of Sydney ($425.6 million). The fastest growth in renovation activity was in Ipswich in Queensland (up 378.6 per cent), ahead of Central Queensland (up 207.3 per cent) and Logan-Beaudesert – also in Queensland – up 141 per cent.

• Interestingly a small number of regions reported falls in renovation approvals in 2020/21, notably in Queensland: Moreton Bay – North (down 34.3 per cent), Moreton Bay – South (down 27.8 per cent), Wide Bay (down 14 per cent) and Sunshine Coast (down 10.5 per cent).

• The greater frequency of lockdowns, and the longer that individual lockdowns last, the greater the likelihood that more people will assess their housing needs. Clearly that means moving home, renovating the existing home or a combination of moving home and renovating.

Response & implications for business

• A number of building companies have reported earnings results over the past week or so. Residential and commercial builder, Mirvac, today reported a 61 per cent increase in statutory profit for the year to June. Mirvac received a record number of conditional deposits and generated $1.2 billion of residential pre-sales over the year. Notably the company reported that it is “in the strongest position we have ever been in”. And further, Mirvac noted it was well positioned with good visibility into the current financial year. Mirvac has provided operating earnings per share guidance of at least 15.0 cents per share for 2021/22, which represents an increase in earnings of at least 7.1 per cent.

• James Hardie also recently reported record sales and profits and noted that ‘more and more people want to re-model their homes’. However it also noted a shortage of skilled labour to complete all the available work.

• While some Aussies will look to ‘make do’ with existing housing space, configuration and position, others will seek to move if they feel that mobility restrictions could last for longer. But the availability and price of appropriate existing homes on the market could prove limiting factors to realising that desire to move.

• Looking ahead, continued take-up of vaccinations should lead to greater community mobility in 2022. A greater supply of homes will hit the market once the large volume of homes under construction are finally built. At the same time, foreign borders are unlikely to fully re-open until later in 2022. Higher supply and lower demand could lead to slower growth of home prices, increasing the desire of Aussies to move rather than build or renovate. So builders, tradespeople, building material suppliers and ancillary service firms will need to take all these factors into consideration.

Published by Craig James, Chief Economist, CommSec