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Muted growth in residential building activity in 2015

Levels of residential building activity in the South African market for new housing improved in 2015, but growth remained relatively low at between 4% and 5% from the 2014 levels of activity, reports Absa Home Loans property analyst Jacques du Toit. Growth in the planning phase of new housing, as reflected by the number of building plans approved by local government authorities, was in 2015 markedly lower than in the preceding year. The construction phase of new housing i.e. the volume of housing units reported as completed, showed some growth last year after two consecutive years of contraction. These trends are based on data published by Statistics South Africa in respect of building activity related to private sector-financed housing.

The number of new housing units for which building plans were approved increased by 5% to a total of 59 667 units in 2015. The segment of smaller sized houses (<80 sq m) and flats and townhouses were the main contributors to the increased level of plans approved. These two segments of housing were the major focus areas of housing supply over the past more 20 years, mainly as a result of factors as the availability and cost of development land, building costs, the affordability of housing and continuously changing lifestyles in especially the major metropolitan areas of the country.

Although the number of new housing units reported as constructed increased by 4,3% to a total of 39 671 units in 2015, this number of housing units built was still the second lowest in the past 10 years. The flat and townhouse segment showed a contraction of around 3% in construction activity in 2015 compared with 2014, with the two categories of houses responsible for the positive growth in total housing construction last year.

The real value of plans approved for new residential buildings increased by only 3,7%, or R1,37 billion, to R38,08 billion in 2015 from R36,71 billion in 2014. The real value of residential buildings reported as completed was up by 9,3%, or R2,13 billion, to R25,11 billion in 2015 from R22,98 billion in the previous year. These real values are calculated at constant 2010 prices.

The average building cost of new housing constructed came to R6 185 per square metre in 2015, which was 6,2% higher than the cost of R5 825 per square metre in 2014. Although the increase in building costs was down on the double-digit annual growth in 2013 and 2014, it remained above the average headline consumer price inflation rate of 4,6% in 2015. Building costs have been increasing by more than the average consumer price inflation rate over the past 10 years and are affected by a number of factors such as building material costs, labour costs, transport costs, equipment costs, land prices, rezoning costs, and developers and contractor holding costs and profit margins.

Residential building activity will continue to be driven by a growing population and number of households, but activity levels in the various segments of new housing will be influenced by macroeconomic trends and developments, household finances, lifestyle trends and consumer and building confidence. The outlook is for subdued economic growth of 0,9% in 2016, with consumers set to face increased financial strain this year on the back of rising inflation, higher interest rates and increasing property-related costs. These trends will have a dampening effect on the demand for and supply of new housing over the next 12 months and beyond.



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