Building approval trends in NSW

Much has been written in the last 18 months about the increasing population in regional Australia. The driver of this has been attributed to COVID-19 influenced migration (so called "flee changers"). This is despite the fact that the number of people moving out of Sydney and Melbourne has been increasing for some years, ie it predates the pandemic. This blog looks at residential building approvals data, concentrating on NSW, and its relationship to population change in regional areas. 

How many dwellings are approved in Australia?

Data on the number of residential building approvals made by Councils and other planning authorities across Australia are collated and published by the ABS. Not all approvals end up as a completed dwelling on the ground, and some approvals are replacing existing dwellings. Nevertheless, it is an indicator of the demand for new dwellings and also influences economic activity in the construction sector and other related industries.

In 2020-21 there were 221,070 approvals in Australia, an increase of 27% over the previous year (173,660). This was still lower than the 232,200 approvals recorded in 2017-18, one of the highest numbers on record. The higher figure in 2020-21 has been influenced by government incentives to support the construction industry as part of the economic recovery from COVID-19.

In 2020-21, Victoria recorded the largest number of approvals (67,690), comprising 30.6% of the total. This is far higher than the state's share of population, and occurred despite negative population growth. It reflects ongoing demand, household formation trends, and stronger growth in outer suburban areas of Melbourne.

By comparison, NSW recorded 59,960 approvals in 2020-21 (27.1%), followed by Queensland (41,950 or 19% of the total). Notably, the number of approvals in Western Australia almost doubled in 2020-21 compared to the previous year, reflective of a new wave of population growth and demand for new housing.

Capital cities and regional areas

In recent years, there has been a net flow of persons out of Sydney to other parts of NSW, with a similar trend evident in Victoria. Many commentators have attributed this trend to the pandemic, suggesting that people want more space, and that working from home has allowed more freedom regarding residential vs office location. However these migration trends were occurring before COVID, suggesting that other factors are at play.

The table below shows the proportion of approvals recorded in the Greater capital city regions (GSCCAs) and the rest of the state since 2017-18. In many states, the share of approvals in the GSCCA declined over this time period. The notable exception was Western Australia, where Greater Perth accounted for around 85% of approvals across the four years.

The biggest shift was recorded in Victoria. In 2017-18, 83.4% of approvals were located in Greater Melbourne, but the equivalent figure in 2020-21 was 73.3% - just over 10 percentage points difference. NSW and Tasmania also recorded a shift in approvals away from the state capital of around 6 percentage points over the same time period.  

Trends in NSW

The number of building approvals varies considerably from year to year and responds to a number of factors. Since the early 1980s, the number of approvals in NSW has averaged around 46,000 per annum. The peak number of approvals was recorded in 2015-16 (73,490), with a similar number in the subsequent two years. However between 2005-06 and 2011-12 the number of approvals was below 40,000 each year, and reached a low of just 24,900 in 2008-09. These trends have not necessarily matched population growth, especially in the last 15 years.

The maps below show the number of approvals in each SA4 over the last four years. They show that SA4s in western Sydney record the highest number of approvals, which corresponds with the major growth corridors. In the last two years, Greater Sydney has accounted for just under 70% of approvals in NSW. This compares with 76.1% in 2017-18, but this was a year in which the number of approvals across the country was one of the highest on record. Nevertheless, this shift indicates greater demand occurring in regional NSW.

In 2020-21, the SA4 with the most approvals was Sydney - Blacktown (6,695), followed by Sydney - Parramatta (5,335) and Sydney - South West (5,164). These SA4s have accounted for an increasing share of approvals in Greater Sydney over the last four years, reaching 41.1% in 2020-21.  

The number of approvals in regional NSW has generally increased over the last four years, reaching 18,080 in 2020-21. There has been little change to the spatial pattern over this time. The majority of SA4s in regional NSW recorded an increase in the number of approvals in 2020-21 compared to the previous year. The exception was Newcastle and Lake Macquarie, where approvals declined by 13%. Regardless, a total of 2,493 approvals were recorded, one of the highest in regional NSW. Hunter Valley exc Newcastle recorded 2,983 approvals, and Illawarra 2,462. That the highest number of approvals were recorded in the largest regional centres is unsurprising. The key locations within these SA4s are growth areas, suggesting that this demand is part of the outward expansion of urban areas..

For example, Hunter Valley exc Newcastle includes larger towns such as Maitland, Cessnock and Kurri Kurri which offer relatively affordable housing and employment opportunities. These towns, and their surrounds, accounted for three-quarters of approvals in 2020-21. The SA2 of Branxton - Greta - Pokolbin is another hotspot for approvals, most of which are located in and around Branxton. There is also considerable growth in the Port Stephens area north of Newcastle, particularly in the emerging strategic centre of Medowie. The SA2 of Williamtown - Medowie - Karuah recorded 380 approvals in 2020-21, more than the previous three years combined.

In 2020-21, Far West and Orana recorded the largest increase (80%), albeit this was from a small base and amounted to 515 approvals. Most of these were located in Dubbo, and represent growth in new estates - similar to the trends described above. It's a similar story in Murray (most approvals in Albury), New England and North West (most approvals in Tamworth), and Coffs Harbour - Grafton, where approvals were more evenly spread across a number of locations. These SA4s all recorded an increase in approvals of about 50% over the 2019-20 figure.

  

Implications for population growth

The evidence from NSW suggests that most growth is in regional centres and represents an expansion of their urban area. An increase in the number of dwellings will generally result in an increasing population. However, there are other challenges such as housing and land supply, water and sewerage infrastructure and environmental factors that may place constraints on large scale development. It's interesting that some of the media commentary regarding flee-changing suggests that people are moving to quaint little towns in regional areas, but the reality is that most of the existing, and new dwelling stock is in larger towns.

It's also important to consider the role of residential property sales, ie turnover of the existing stock. All things being equal, population change will be modest unless the housing turnover is accompanied by shifts in household size (eg families replacing couples) and/or occupancy rates. An example of the latter is locations with a high number of unoccupied dwellings. If they are sold and then occupied permanently, then this will increase the population. For many years, demographers have assumed a reduction in unoccupied dwellings in coastal areas, particularly as baby boomers retire. However this is not generally supported by the available data - holiday locations with high amenity are still more likely to have a high proportion of unoccupied dwellings.

Summary

The share of residential building approvals in regional NSW has increased over the last four years, reaching 30.1% in 2020-21. This is in line with the ongoing migration of people out of Sydney over many years. Increases in the number of approvals have occurred across most of the state. The highest numbers are located in regional centres are a continuation of the outward growth of the urban areas. The ongoing release of population data from the ABS, including the 2021 Census, will provide an updated evidence base upon which to assess the "flee change" phenomenon.