APRA-initiated investor retreat behind apartment downturn

“The decline in multi-unit dwelling starts has dragged down the total number of new home starts during the final quarter of 2017,” Mr Murray said.

“The total number of dwelling starts fell by 5.0 per cent in the December 2017 quarter and was down by 8.3 per cent on the level recorded a year earlier.”

Mr Murray added that, in contrast to the decline in multi-unit starts, the resilience of the detached house market continued to “shine through”.

“The number of detached house starts during the December quarter of 2017 increased by 0.7 per cent over the quarter and was up by a similar amount compared with the level a year ago.

“Despite the soft starts result in the quarter, the pipeline of multi-unit activity remains quite large. There were still over 150,000 multi-unit dwellings under construction at the end of 2017, which is only slightly below the 155,000 level at the peak of the cycle. There are a further 33,800 dwellings in projects that have been approved and are yet to start work. This is a record high.”

But Mr Murray also said that the combination of falling commencements and the build-up of dwellings in projects awaiting commencement is “somewhat” concerning.

“It is likely to indicate a slowdown in pre-sales activity,” the senior economist said.

“New projects will not commence construction until they achieve a satisfactory level of pre-sales.

“Pre-sales to investors, both domestic and from overseas, have been important for many multi-unit developments. With additional taxes on foreign investors and regulators clamping down on investor lending, investors have retreated from the market.”

He said that if investors return to the market and the approved projects continue to progress, then residential building work could potentially make a stronger contribution to economic growth this year than economists are expecting.

So, Mr Murray warned that now is not the time to impose additional taxes or constraints on investors.

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