Lagging building approvals point to a decade of housing crisis pain
The prospect of the Federal Government meeting its five year target appears bleak, as house approvals to continue to slide backwards.
Building approvals that saw a slight uptick in in the latest monthly data will offer little solace to those struggling with the housing crisis.
A 1.6 per cent increase in the total number of new dwellings approved was driven by a 6.7 per cent increase in apartments, townhouses and terraced homes.
But the gains were largely offset by a fall in the larger house market, which in November reversed earlier gains by easing back 1.7 per cent, according to the Australian Bureau of Statistics (ABS).
Tuesday’s figures (9 January) will do nothing to allay concerns that the Federal Government’s goal of building 1.2 million homes in five years appears an unlikely ambition.
Maree Kilroy, Senior Economist for Oxford Economics Australia, said the outlook in the years ahead was grim for those caught up in the housing and rental crisis, with few signs of a significant turnaround in the chronic lack of housing supply.
“Against a backdrop of strong population growth, a sustained mismatch between demand and supply for housing is locked in for the next few years at a minimum,” Ms Kilroy said.
Despite a substantial volume of delayed HomeBuilder projects coming online over the first half of 2024 and providing an uplift to near-term supply, more needed to be done to counter the growing need for new homes.
“With the backlog normalising, the trajectory of dwelling approvals points firmly to a softer FY2025 for dwelling completions,” Ms Kilroy said.
“While movement on the housing policy front is encouraging, planning lags and construction timeframes mean it will take until the back half of the decade to see a meaningful activity boost.”
Victoria (-2.3%) and Western Australia (-2.8%) were prime drivers behind private house approvals softening 1.7% to 8,506 but both states were coming off robust growth in October. New South Wales, South Australia and Queensland held relatively flat.
Total dwelling approvals increased in Victoria (+7.8 per cent) and South Australia (+6.0 per cent). Falls were recorded in Tasmania (-22.6 per cent), Queensland (-14.6 per cent), New South Wales (-6.9 per cent) and Western Australia (-5.5 per cent).
Government goals on shaky foundations
The hope was that building approvals would be ramping up significantly by now. It’s not happening.
Daniel Rossi, ABS head of construction statistics, revealed on Tuesday that despite the modest monthly increase, total dwellings approved have been lower this financial year.
“In original terms, 70,900 dwellings were approved between July and November in 2023, compared with 81,954 over the same period in 2022,” he said.
Based on this five-month measure, around 171,000 new dwellings will come on stream over 12 months, massively short of the 240,000 new homes promised each year by the government between 2024 and 2029.
Jarden economist Carlos Cacho said he expected housing starts in 2024 to slow to about 155,000, which would be the slowest pace since 2012.
Tim Reardon, Chief Economist, Housing Industry Association (HIA), highlighted the scale of the dilemma.
“A continued fall in the number of new houses approved indicates a slow start to the Australian government’s ambition,” Mr Reardon said.
“The low volume of building approvals throughout 2023 will see the volume of homes commencing construction continue to slow this year.
“Other leading indicators of activity in the housing market, such as new home sales and housing finance data, are also consistent with their confirmation of this projected slowdown.
“The rise in the cash rate is the primary cause of this slowdown in approvals,” he said.
The National Housing Finance and Investment Corporation estimates Australia’s housing shortfall will reach at least 175,000 homes by 2027.
State governments in Albanese’s sights
State governments are resorting to their own measures to bolster an ailing building industry that appears ill-equipped to deliver the desired increase in approvals even if the demand emerged.
In Western Australia, the government has launched the Builders’ Support Facility, which will provide interest-free loans to support eligible residential builders to complete new homes that have been under construction for more than two years.
Queensland’s $2 billion Housing Investment Fund provides subsidies, one-off capital grants and other support to encourage developers, builders, Registered Community Housing Providers (RCHPs), tenancy managers, institutional investors and superannuation funds to partner to develop, finance and operate additional social and affordable housing supply in the state.
Lower tiers of government are certainly in the sights of Prime Minister Anthony Albanese as developers struggle to build enough homes.
He has called on state and local governments to drastically speed up building approvals and increase density.
“We know that there have been supply-chain issues as a result of global inflation and as a result of the … pandemic, but we need to put our shoulder to the wheel at all levels of government, including local government, by having appropriate approvals,” he told reporters in Sydney on Friday (5 January).
He cited his own electorate in Western Sydney as being a prime example of the scope for greater housing infill, along with other areas around the country that had the appropriate transport infrastructure.
He said there needed to much higher density along Parramatta Road, a 23-kilometre stretch of road in Sydney that cuts through a number of popular inner-west suburbs including Summer Hill, Leichhardt and Ashfield.
Master Builders Australia chief economist Shane Garrett had his doubts, forecasting that 2023-24 will see around 170,100 new homes built, well below the never-before achieved 240,000 needed per year to meet the 1.2 million housing accord targets.
“More higher density building will help alleviate some of the pressure in the rental market which has seen big inflationary impacts in the economy.
“Labour market shortages, lack of shovel-ready development, planning delays and interest rate rises continue to be the biggest impediments to home building,” Mr Garrett said.