Why rising apartment approvals are not Australia’s housing crisis saviour

Apartment approvals have surged in recent months, signalling a renewed confidence in the apartment market.

Despite optimism in the sector, significant challenges remain in translating approvals into new housing supply, as Australia grapples with the ongoing housing crisis.

Data recently released by the Australian Bureau of Statistics shows apartments are driving growth in building approvals.

In January, approvals for private sector dwellings excluding houses increased by 12.7 per cent month-on-month and 41.6 per cent year-on-year.

In contrast, approvals for private sector houses saw a more modest rise, with an increase of just 1.1 per cent monthly and 8.9 per cent yearly.

Regions grappling with particularly tight housing markets have seen apartment approvals soar, in a bid to increase supply and ease the upward pressure on housing prices.

In Perth alone, plans for more than 1,000 apartments were lodged in a three-month period earlier this year, doubling the rate as seen in the previous year.

Labour and financial constraints stem supply

While this surge in approvals reflects increased confidence in the apartment sector, the gap between approvals and completions is prolonging the struggle to meet housing demand.

Completions for private sector dwellings excluding houses decreased by 5.5 per cent in the September quarter, indicating that fewer projects are making their way through the pipeline, despite increased approvals.

This is largely attributed to a post-pandemic surge in commencements in 2021, which created competing demand for trades and materials.

As an increased number of projects tussled for limited resources, the result was a bottleneck effect that caused many projects to be delayed or abandoned altogether.

According to historical data, approximately 17 per cent of approvals will fail to translate into completions.

The completion timeline for multi-residence projects is also significantly longer than that of detached houses. Data from the Australian Bureau of Statistics in 2019 showed it took an average of 6.66 quarters for apartments, flats and units to be completed, in stark contrast to just 2.22 quarters for houses.

In addition to delays, the financial viability of constructing new apartments is becoming an increasingly critical issue. With average profit margins in the construction industry hovering at around 5 per cent, the apartment industry is highly sensitive to inflationary pressures.

Data collected by PropTrack in 2024 showed building input prices had risen by 33 per cent while output prices for apartments had risen by 23.2 per cent, narrowing profit margins even further.

With construction prices soaring, many developers have opted to landbank upcoming projects or delay commenced projects until completing the project becomes more financially viable.

Clearing the apartment approvals bottleneck

While apartment approvals are on the rise, a preference for detached houses remains deeply rooted in Australian culture.

The Great Australian Dream of owning a standalone home remains an aspiration for most Australians, with a Westpac survey finding that 77 per cent of Australians would prefer a house with a backyard.

However, as supply becomes tighter and the housing crisis deepens, more Australians are beginning to embrace apartment living as a more accessible option.

Economic factors are a main driver in changing attitudes towards apartment living, with apartments now leasing at an increased rate.

According to a PropTrack analysis in 2024, units are leasing 36 per cent faster while houses are only leasing 9 per cent faster when compared to data from 2020.

As houses become further out of reach for buyers and renters alike, Australians are beginning to reconsider apartment living.

To tackle the housing crisis effectively, it’s critical that Australia not only addresses the bottleneck between approvals and completions for apartment developments, but also embraces change as the nation builds a more sustainable and accessible housing market.