8752.0 - Building Activity, Australia, Jun 2017 Quality Declaration 
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 11/10/2017   
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ABANDONMENT RATES FOR NEW DWELLINGS


INTRODUCTION

The number of dwellings in the pipeline (i.e. approved but not yet commenced) has surged to unprecedented levels over the last few years (see Graph 1). This is mainly due to an increase in other residential dwelling approvals, particularly for new apartments in New South Wales, Victoria and Queensland (see Building Approvals, Australia 8731.0). There has also been a recent increase in the average time between approval and commencement for these projects (see Average Dwelling Commencement Times feature article). This could indicate an increased risk that these projects will not proceed to commencement (i.e. are abandoned), therefore not contributing to future building activity.

This article examines long term trends in abandonment rates of new dwelling approvals to inform future building activity figures. The composition of abandoned dwellings by type of building, location and length of time in the pipeline are presented.


Graph 1: Number of dwellings approved but not yet commenced, Australia
Graph 1: Number of dwellings approved but not yet commenced, Australia

Once a new dwelling has been approved (a building approval is defined as the final certification required before building activity can legally commence), it may be considered abandoned before or after construction has commenced, where:

  • The owner of the building job reports that the approved work is not going to commence or continue, and the building job has not been sold to another entity; or
  • No construction has commenced within the required period and the approval has expired.


RESULTS

Dwelling Abandonments Over Time

The number of dwellings abandoned has remained relatively stable over the past decade (see Graph 2), with 5,114 dwellings abandoned in the 2016-17 financial year compared to 4,643 dwellings abandoned in the 2006-07 financial year.

As a proportion of dwellings approved each financial year, the rate of dwellings abandoned has decreased slightly over the past decade (see Graph 3). This is largely due to an increase in the number of dwellings approved over this time, along with a slight decrease in the number of dwellings abandoned. The abandonment rate reached a peak of 3.7% in the 2008-09 financial year due to a decrease in approvals following the global financial crisis.

The increase in the abandonment rate in the 2016-17 financial year was due to an increase in abandonments of 2,028 dwellings, along with a decrease in approvals of 18,478 dwellings.


Graph 2: Number of dwellings abandoned, Australia
Graph 2: Number of dwellings abandoned, Australia		 Graph 3: Percentage of approved dwellings abandoned, Australia
Graph 3: Percentage of approved dwellings abandoned, Australia


Composition of Abandonments

Type of Building

Until 2015-16, the number of new houses abandoned was higher than the number of new other residential dwellings abandoned (see Graph 4). However, as a proportion of dwellings approved, the abandonment rate for new other residential dwellings tends to sit higher than that of new houses (see Graph 5). This indicates a higher likelihood of abandonment for these types of dwellings, particularly in periods of declining approvals (i.e. following the global financial crisis in 2008-09 and 2009-10).

The rates of new houses and new other residential dwellings abandoned have both decreased between the 2006-07 and 2016-17 financial year periods, with new houses decreasing from 2.9% to 2.0% and new other residential dwellings decreasing from 3.3% to 2.7%.

Graph 4: Number of dwellings abandoned, Type of building, AustraliaGraph 4: Number of dwellings abandoned, Type of building, Australia Graph 5: Percentage of approved dwellings abandoned, Type of building, Australia
Graph 5: Percentage of approved dwellings abandoned, Type of building, Australia


State

New South Wales had the highest number of dwellings abandoned each financial year since 2006-07 (see Graph 6). Historically, New South Wales also had the highest abandonment rate of the major states, peaking at 7.7% in the 2007-08 financial year (see Graph 7). This has decreased in recent periods to 2.1%, comparable to the national average (2.3%) and below the rate in Western Australia (5.1%) for 2016-17 financial year.

The increase in Western Australia in 2016-17 is a result of both an increase in the number of dwellings abandoned and a decrease in the number of dwellings approved, which has fallen 24.5% in 2015-16 and 19.2% in 2016-17 (in trend terms, see Building Approvals, Australia 8731.0).


Graph 6: Number of dwellings abandoned, Major states
Graph 6: Number of dwellings abandoned, Major states		 Graph 7: Percentage of approved dwellings abandoned, Major states
Graph 7: Percentage of approved dwellings abandoned, Major states


Time in Pipeline

The time in the pipeline is the length of time between approval and commencement or abandonment, or the time since approval for not yet commenced dwellings. Graph 8 shows that the majority of dwellings are abandoned within five quarters of being approved (2,888 dwellings in 2016-17). Fewer dwellings are abandoned after being in the pipeline for over fifteen quarters, although this increased to 1,196 dwellings in the 2016-17 financial year. Comparatively, very few dwellings are abandoned after construction has commenced (581 dwellings in 2016-17).

The majority of dwellings currently in the pipeline have also been approved within the previous five quarters. Despite the large increase in dwellings in the pipeline over the past few years, there has not been a significant increase in projects that have been sitting in the pipeline for long periods of time (over five quarters).


Graph 8: Number of dwellings abandoned, Time in pipeline, Australia Graph 8: Number of dwellings abandoned, Time in pipeline, AustraliaGraph 9: Number of dwellings approved but not yet commenced, Time in pipeline, Australia
Graph 9: Number of dwellings approved but not yet commenced,


Implied Abandonment Rate

An implied abandonment rate can be calculated from data published quarterly in Building Activity, Australia 8752.0, by comparing the number of dwellings approved with the number of dwellings commenced (see Graph 10). The rate calculated using this method is more volatile than the measured abandonment rate presented in this article (which has been calculated using unit level data). The measured and implied abandonment rates are broadly comparable over long periods of time (from June 2007 to June 2017, the average implied abandonment rate was 1.6% for new houses and 3.9% for new other residential dwellings, compared with the average measured abandonment rate of 2.4% for new houses and 2.9% for new other residential dwellings). However, quarterly movements of the implied abandonment rate should be interpreted with caution due to the volatility in the dwelling commencements series.


Graph 10: Implied Abandonment Rate* , Type of building, Australia
Graph 10: Implied Abandonment Rate* , Type of building, Australia

*Implied abandonment rate = 100% - dwellings commenced / dwellings approved.

The implied abandonment rate will not align with the measured rate due to:
  • projects changing scope between initial approval and commencement (i.e. the number of dwellings may be different); and
  • the timing delay between approval and commencement, which results in a negative implied abandonment rate in quarters with more commencements than approvals.

CONCLUSION

These findings indicate that the large increase in dwellings in the pipeline will not necessarily result in an associated increase in abandonments. Historically, the number of abandonments have been stable over periods where approvals have declined, such as following the global financial crisis. However, the current number of dwellings in the pipeline is at an historical high, and as such, future behaviour may be difficult to predict.