On Monday the Australian Bureau of Statistics (ABS) will publish building approvals data for the Illawarra Region for December.
This data, which the ABS has collated over January, will complete the picture on building approvals for the whole of last year.
This data is very important for the region, because what is approved for construction today will be built in the future.
This means that building approvals data today tells us what economic activity will be like in the next 12 to 18 months in the region.
However, the data that will be released on Monday is almost somewhat moot.
This is because with only 11 months of data available, the cumulative figure for 2018 of $1.2 billion worth of building approvals has already “smashed” what was racked up for the whole of the previous year - $1 billion.
Indeed, the volume of building approvals for the 11 months to November last year is greater than the total building approvals notched up in each of the full previous five years.
Furthermore, for the period July to November 2018, building approvals for the Illawarra came in at $583 million, which is a staggering 20 percent greater than the same period in 2017.
At the moment, house prices are roughly where they were in January 2017. This means that, on average, anyone who bought real estate in the Illawarra after 1 January 2017 – without development - is sitting on a piece of real estate worth less than what they paid for it. However, it’s not all gloom.
So no matter which way you look at it, the construction sector appears to be optimistic and approvals for new projects are dramatically on the rise.
To me, this is somewhat of a mystery because house prices right around the country are in free fall, making real estate development projects significantly less profitable.
And the Illawarra region has not been spared this carnage. So why the apparent optimism from the construction sector?
According to the latest data from Corelogic, Illawarra real estate prices have fallen for the ninth month in a row. In January, the value of real estate in the Illawarra fell 1.2 percent – the second largest fall in the last nine months – which brings the total fall in Illawarra real estate prices to roughly seven percent in the last nine months.
The same data reveals that house prices have been worse hit than the price of units.
House prices over the last nine months have fallen 8.5 percent while unit prices have only fallen 1 percent.
At the moment, house prices are roughly where they were in January 2017.
This means that, on average, anyone who bought real estate in the Illawarra after 1 January 2017 – without development - is sitting on a piece of real estate worth less than what they paid for it.
However, it’s not all gloom.
There was a massive bull-run that preceded the fall.
So the numbers reveal that anyone who purchased Illawarra real estate before 2017 is still sitting on a profit.
If, for example, you bought in January 2016 then according to Corelogic numbers, you are still doing okay because you are sitting on property that is worth 13 percent more than what you paid for it.
If you were lucky enough to have bought before January 2013 – six years ago – then you are sitting on a piece of real estate worth a pretty 50 percent more than what you paid for it.
In the last six months, property prices have fallen by roughly 1 percent per month.
If they keep falling at this rate for another 12 months, then anyone who bought a property before January 2016 will no longer be sitting on a profit.
With another 12 months of this pace of falls, anyone who bought before January 2015 – four years ago – will no longer be sitting on a profit.
It is this realisation that is driving the surge in building approvals, by pushing developers who have already purchased real estate to develop the property.
It’s a race against time.
The longer it takes developers to get their project approved, built and sold the more the delay will bite into their profits and their livelihood.
For now, it’s this race that is propping up the local economy and keeping unemployment somewhat in check … well, at least for another 18 months or so.
Alex Frino is Professor of Economics and Deputy Vice-Chancellor (Global Strategy) at the University of Wollongong.