Signs emerging that worst is behind building industry

A sizeable jump in approvals of new apartments, townhouses and villas has pointed to the building industry clawing its way out of what has been a testing, often devastating, few years.

The Australian Bureau of Statistics on Monday (2 December) released data that showed dwelling approvals had hit a 22-month high.

The total number of dwellings approved rose 4.2 per cent in October to 15,498, after a 5.8 per cent rise in September.

The October result was boosted by a rise in approvals for high-rise apartments, mainly in New South Wales and Victoria.

Approvals for private dwellings excluding houses (which includes townhouses and apartments) rose 24.8 per cent to 5,859, to the highest level since May 2023. Single family housing approvals fell by 5.2 per cent in October, after reaching a two-year high in September.

A total of 2,782 high-rise apartments were approved, up from 1,815 in September, the highest since January.

KPMG urban economist Terry Rawnsley told media that the building industry was emerging from the gloom.

“The bad times are starting to end,” Mr Rawnsley said.

“As people have done their sums, they’ve seen prices stabilise.

“Even with RBA interest rates being unchanged for the year, they still have that confidence that if they can get a project out of the ground they’ll be able to sell it at a profit.”

While the numbers are encouraging, they are still not at the levels seen prior to the pandemic.

They are up for the month of October but over the last 12 months only 56,797 apartments and townhouses were approved. This is fewer than in the preceding 12 months at 63,307 and over the same period in 2017-18 when approvals were just under 100,000.

Matthew Kandelaars, Group Executive Policy and Advocacy, Property Council, said while pleasing to see apartment approvals on the rise, they are still close to half of what was being built over the same period in 2017-18.

“Apartment approvals are historically volatile and so we need more consistency to identify a trend, but the increase is positive,” Mr Kandelaars said.

“Apartments are an integral part of our housing ecosystem and can positively tip the supply equation at scale, and we need to get back to the construction levels seen nearly 10 years ago.

“Sadly, the undersupply of housing has been allowed to fester for decades and will require action to address rising construction prices and labour shortage, alongside planning delays, slow approval processes and shifting state property taxes,” he said.

A cautious tone was also struck by Maree Kilroy, Senior Economist for Oxford Economics Australia.

“While the latest approval result for apartments was positive, we continue to expect a materially higher dropout rate to commencement,” she said.

“Houses will drive the improvement as apartment activity provides an offset.

“Utility connection bottlenecks and trade labour shortages will make a more aggressive recovery difficult.”

Ms Kilroy added that mortgage rate cuts from mid next year will aid the release of pent-up housing demand, while traction on the housing policy front will become increasingly obvious.

“With the upturn spreading across all build forms and states, a sharper uplift is forecast for FY2026.”

Housing Industry Association Economist, Maurice Tapang, said unchanged interest rate settings has provided some degree of certainty for consumers.

“Households are returning to new home building despite there being no cut to the cash rate. This is because unemployment remains at very low levels, while housing demand remains very strong.

“Prices of home building materials have also been growing at a more normal pace, the latest data showing a 1.4 per cent annual increase in September 2024.

“Low unemployment, unchanged interest rates, stable growth in materials prices and a return to normal build times are helping lift up the market from its recent trough.”

Many Australians are, however, turning to renovation instead of new homes.

According to analysis from KPMG Australia, renovation spending has lifted by 6.5 per cent over the past five years, while new private residential construction dropped by 14 per cent when adjusted for inflation.

In New South Wales, renovation spending exceeded new dwelling construction during 2022-23, with coastal areas like Northern Beaches and Sutherland Shire leading the charge.

Victoria has emerged as the leader in one-for-one replacements, where existing homes are demolished and replaced with single new dwellings, accounting for 12.6 per cent of new residential construction.

Major new social, affordable housing developments

In an attempt to boost housing stock, the South Australian and Western Australian state governments within 24 hours of each other announced major new housing projects.

Roger Cook’s government in the west said it will deliver almost 1,800 social and affordable homes, in one of the single biggest boosts to affordable housing stock in the state’s history.

Around 20 per cent of the homes will be available as social housing, with 80 per cent to become affordable community housing.

The first tranche of projects will consist of 14 developments in Ellenbrook, Byford, Brabham, Redcliffe, Wellard, Woodbridge, Banksia Grove, Rivervale, White Gum Valley, Subiaco, Albany, Dalyellup, Golden Bay, and Treeby - delivering nearly 1100 new homes.

These new dwellings will be constructed on State-owned land and the completed dwellings will be sold to and managed by the Community Housing sector, with Availability Payments attached to support affordable rental dwellings for Western Australians.

Under the proposal, the Cook Government will initially invest $443 million to fund the upfront construction costs of the new homes, which will then be sold to Community Housing Providers (CHPs).

In South Australia, the Federal Government is investing $70 million to bring forward 3,641 new private and social housing in key growth areas across the state.

Separately, a joint contribution between the Federal and the South Australian State Government of more than $30 million will facilitate the delivery of 700 affordable homes in the City of Playford in Adelaide’s northern suburbs.