Trends in residential building
Evidence of "exuberance" building in a residential market can often be seen in the characteristics of the residential buildings that are being built during certain periods, on top of looking at the overall level of building activity, house price growth and other indicators.
To this effect, we examine the FNB data regarding building characteristics of residential buildings, grouped together by year in which they were built.
While we have seen a solid residential market since early 2012, building characteristics this time around have shown very little sign of major "exuberance" when compared to the early part of the 2000 to 2007 boom period.
The recovery in the residential market after the 2008/9 recession, driven by sharply lower interest rates and the resumption of positive economic growth, was accompanied by a slight increase in the average size of full title stands for buildings built in 2011 and 2012, after this average full title stand size reached an all-time low of 476m2 in 2010.
The decline resumed in 2013
However, the increase was of minor magnitude and the decline in average stand size resumed in 2013, as affordability once again started to deteriorate, with the 2013 average full title stand size measuring 517m2 last year, a far cry from the 648m2 recorded back in 2001.
However, even back in the boom years early last decade, average stand size never really rose significantly. Urban land scarcity has been steadily increasing since the 1970s, real land values rising over the long term, and this has necessitated a long-term trend towards greater densification, continuing largely unabated even through the 2000 to 2008 period of high exuberance.
Where the exuberance was perhaps more evident during the boom period, however, was in terms of building characteristics.
The average residential building size, according to build date, rose a very significant 143.8m2 in 1997 to 182m2 by 2001, before the house price boom precipitated a greater "affordability drive" and a renewed decline in average home size.
This time around, during the financially constrained post-2009 recovery, the average residential building size rose by a lesser magnitude, from 133.9m2 in 2011 to 153m2 in 2012, and then quickly began to recede in 2013 to 144.5m2, with affordability beginning to turn the corner for the worse last year.
The financially constrained household sector environment, and the drive for affordability, is perhaps even more evident in the level of "luxuries" attached to residential homes. As the 2000 to 2008 boom gathered steam, the percentage of homes with garages, according to build date, rose sharply from 52% in 2007 to 73.5% by 2002. This percentage then slumped all the way to 44% by 2010, and has risen only marginally to record 50% by 2013, but this is already slightly down from 2012's 51%. The percentage of homes with domestic workers' quarters, too, at 10.96% in 2013 remained far down on the boom time peak of 18.4% back in 2001.
And, finally, one of the biggest luxuries is, perhaps, the swimming pool - a feature that is steadily on a path to extinction in the modern South African home. The post-recession residential recovery brought about a brief rise in the percentage of homes with a pool, from 9.9% in 2011 to 14.1% in 2012. However, very quickly as affordability started to deteriorate in 2013 we saw this percentage drop off to an all-time low of 6.65% last year.
This all remains a far cry from the boom time rise in homes with swimming pools, from 21.7% of homes built in 1997 to 28.9% in 2001.
Conclusion
Examining the residential building characteristics of all properties valued by FNB since 2000, grouped according to build date, we have seen very little sign of renewed "exuberance" in the residential market as the market has recovered following the 2008/9 recession.
Admittedly, homes built around 2012 were, on average, slightly larger than in 2011, built on a slightly larger-sized stand, and with a slightly higher percentage possessing "luxuries" such as garages and swimming pools. However, these increases were quickly reversed in 2013, and paled into insignificance when compared to the major boom time "improvements" that took place from the late-1990s up until around 2001.
These trends in residential building characteristics provide further support to our view that the post-recession residential recovery has been largely free of the "over-exuberance" that characterised the 2000 to 2008 boom years. They reflect a financially constrained household sector focused far more on essentials. The focus on essentials has been reflected in our weak Estate Agent Survey levels of holiday and buy-to-let home buying, and is further reflected in these FNB statistics regarding building characteristics of recent years.
Therefore, while we still anticipate some positive growth in residential building activity to come in the near term, the type of buildings produced are expected increasingly to reflect a focus on "essentials" in an environment of once-again deteriorating affordability, with the average stand and building size declining further, and a declining percentage of homes possessing "luxury items" such as those we have outlined.