Tumbling building approvals worsening the rental crisis

Building approvals have nosedived for the third month in a row and the implications for the residential rental market and construction sector are severe.

Construction scaffolding around a new building in New South Wales.
Approvals for private sector houses fell across most states. (Image source: Shutterstock.com)

Building approvals for high density dwellings have plummeted by almost a quarter in just one month.

The November quarter building approval numbers from the Australian Bureau of Statistics, released on Monday (9 January) reflect the latest string of economic pressures faced by the building and construction industry, according to Master Builders Australia (MBA) CEO Denita Wawn.

Daniel Rossi, ABS head of construction statistics, said the result was driven by private sector dwellings excluding houses, which decreased 22.7 per cent. Approvals for private sector houses fell by 2.5 per cent.

The total number of dwellings approved fell 9.0 per cent in the month, in seasonally adjusted terms, following a 5.6 per cent decrease in October, according to the ABS.

The November result is the third consecutive month of declines for total dwelling approvals, having fallen 21.7 per cent since August,” Mr Rossi said.

Across Australia, total dwelling approvals fell in New South Wales (-18.4 per cent), Western Australia (-17.5 per cent), Victoria (-12.7 per cent), and Queensland (-5.6 per cent), while Tasmania (75.7 per cent) and South Australia (10.0 per cent) recorded increases.

Approvals for private sector houses fell across most states, with Victoria (-8.0 per cent), Western Australia (-6.1 per cent), South Australia (-2.6 per cent) and Queensland (-1.2 per cent) decreasing, while New South Wales rose 1.2 per cent in November.

With more than 200,000 migrants per year expected and budgeted for over the coming year or so, where are they going to live?

- Richard Crabb, Managing Director, Aspire Advisor Network

The MBA did not downplay its alarm.

“The latest building approvals data is concerning, and it’s clear that we are facing significant challenges which need to be addressed head-on if we want to weather the storm and see a sustainable recovery,” Ms Wawn said.

“Higher density home building approvals, which are particularly sensitive to interest rate movements, had shown momentum during 2021 but this is now on the way down.

“A number of factors are making it difficult for new home building, including rising interest rates coupled with labour and material shortages.

“We must not be complacent in addressing some of the systemic challenges on the supply-side which continue to ripple through the economy.

“Builders continue to advocate for an increase to the migration cap and changes to the migration system that make Australia a more attractive place to live and work, and complementing this with improvements to domestic vocational education and training,” Ms Wawn said.

Damian Collins, Managing Director of Momentum Wealth, said the approvals declines could not come at a worse time for renters.

“We have a national rental shortage and that is not improving, just as it seems population growth is ramping up,” he said.

“There’s a lot of properties under construction but once the backlog is finished there’s not enough coming through to meet demand.”

The big story of 2023

Kate Hill, Property Buyer for Advisable, said the severe shortage of rental properties will be the real estate story of 2023.

“Many investors sold out during 2022, and they are slow coming back and the borrowing capacity of many has dropped with the rising rates,” she said.

“The shortage won’t end any time soon, and rents will continue to increase over the coming 12 to 24 months.

“The real shortage of quality listings is still a problem but have also kept the supply and demand balance.

“Developers are deferring projects, home building is down, and the construction industry is struggling with a labour and material shortages, meaning that many developments are not going ahead, which in turn means we are already in, and heading into, to a housing supply shortage right at the time when demand will pick up.”

Managing Director of Aspire Advisor Network, Richard Crabb, agreed that it is “definitely a landlord’s market” for the foreseeable future, with the construction sector’s woes contributing to that.

“Whether we are talking civil construction for the land production or the cost for building houses, the mixture of uncertainty and increasing costs has presented challenges.

“We are now seeing a lot more certainty returning to the market with our builders begin able to secure longer term supply pricing contracts.”

“With more than 200,000 migrants per year expected and budgeted for over the coming year or so, where are they going to live, given our tight rental markets?”

The decline in multi-dwelling approvals is also seen as a blow to efforts to rein in the rapid pace of urban sprawl, or expansion, with increased urban density seen as a key to housing ever-expanding populations.

Article Q&A

How healthy is the building industry in Australia?

A third consecutive month of declines for total dwelling approvals suggests the building industry is struggling to come to grips with rising material costs and labour shortages. the total number of dwellings approved fell in New South Wales (-18.4%), Western Australia (-17.5%), Victoria (-12.7%) and Queensland (-5.6%) in November 2022. Despite this, the value of non-residential building approved stayed strong, increasing 2% in November, following a 2.3% rise in October.

Is the rental crisis likely to ease in 2023?

Property experts are not expecting the rental market to improve in 2023, telling API Magazine that the severe shortage of rental properties will continue as interest rates impact the borrowing capacity of investors, a shortage of quality listings remains a problem, and building approvals continue to fall.

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