Residential building statistics for Q2 2022 have held up well considering the mounting economic pressure as inflation and interest rates rise.
Growth in the number of units of residential building plans passed remained positive albeit slowing to 10.6% year-on-year following a year-on-year growth rate of 17% for Q1. This is the fourth consecutive quarter of tapering growth in plans passed as the post-lockdown recovery ‘levels out’.
“The level and indication of plans passed is typically a leading indicator of the director of building activity to come in the near term”, says John Loos, Property Sector Strategist for FNB Commercial Property Finance, “So we would anticipate a slowdown in the growth rate of residential buildings completed in the not-too-distant future as well. However, it was probably to early to see slowing growth in completions as at Q2 2022, the number of units completed still growing solidly year-on-year by 18% during that quarter”.
“We would however expect to see the growth rate in the level of residential units completed, begin to slow in the latter half of 2022”.
The residential market is credit-dependent and interest rate sensitive, and the start of slowing growth in planning activity is reflective of the combination of rising inflation and interest rates. In addition, the economy appears to be under renewed pressure from global sources which could dampen household employment and income growth.
Interest rates have risen cumulatively by 200 basis points since late 2021, and FNB anticipates a further 125 basis points’ worth of hikes in the near term. “Our expectation is therefore that there is likely to be year-on-year decline in the level of residential plans passed later in 2022, following on a good period of post-lockdown growth”, he says.
Residential building planning has had a reasonably good post-lockdown recovery period, following the relaxation of Covid-19 lockdowns, fuelled by the lagged impact of aggressive interest rate cutting early in 2020 as Covid-19 hit. As at Q2 2022, the number of units plans passed was +25% above 2019’s corresponding quarter.
However, not all of this growth in planning had yet translated into completions, and the number of units completed was still -28.2% below 2019’s Q2.
Examining the categories of building plans passed, it is the most affordable segment, i.e., “dwelling (free standing) houses smaller than 80 square metres” that grew most significantly by 24.6% in Q2 while “dwelling houses larger than 80 square metres” recorded a slower 5.1%, and the “flats and townhouses” category’s 10.9% growth.
“In fact, SARB uses the total of new plans passed for the latter two categories as a component of its leading business cycle indicator (i.e., ‘dwelling houses larger than 80 square metres’ along with ‘flats and townhouses’), so sensitive are these two building categories to the economic and interest rate cycle. It is encouraging to see their combined total still in positive growth territory to the tune of 8.8%, despite significant sources of economic pressure mounting”, says Loos.
“However, we would expect their plans passed total to begin to decline later in 2022, in order to increasingly reflect the renewed economic pressures emanating from high global energy and food prices driving broader inflation, rising interest rates and a slowing global economy”.
