Lowest building approvals in over a decade challenge housing ambitions

The Federal’s government’s ambition to build 1.2 million affordable and well-located homes over the next five years looks even further out of reach, following the release of the latest building approvals figures.

The Australian Bureau of Statistics (ABS) seasonally adjusted figures for June 2024—the month before the 5-year timetable to build 1.2 million homes officially starts—show that the number of approved dwellings in a financial year has fallen to its lowest level since 2011/12.

The details:

According to the ABS, the total number of dwellings approved in June 2024 fell 6.5% from the previous month’s figure to 13,237.

The fall is particularly disheartening after total approvals rose 5.7% in May, also breaking a five-month growth streak, which had led some analysts to think the construction industry may have turned a corner.

New house approvals fell 0.5% in June to 9,078, while private sector dwellings excluding houses (the category that includes apartment buildings, townhouses, and other higher-density developments) fell a large 19.7% to 3,918.

The value of total residential building approvals also fell 0.6% to $7.61 billion.

Over the past 12 months, just 162,892 homes have been approved in Australia.

That’s down from 177,936, or 8.5% from the previous year, making it the lowest number of approved dwellings on a financial year basis since 2011/12.

The building industry needs to build an average of 240,000 homes over the next five years—at an average of 20,000 homes a month—to achieve the ambitious goal agreed upon by state and federal housing ministers late last year.

The Property Council of Australia says the figures “continue to paint a challenging picture” of reaching the 1.2 million new homes target by mid-2029.

“That our dwelling approval numbers have hit the lowest number on a financial year basis in over a decade is a clear sign of the challenges we face in delivering the homes Australians need,” says Matthew Kandelaars, the Council’s Group Executive for Policy and Advocacy. 

“If we don't accelerate our efforts, we will fall far short of what should be an attainable target.”

“Governments nationwide must use every available measure to help industry deliver the desperately needed supply of new homes,” he says.

“We need an invigorated focus on supply-inducing last-mile infrastructure, more construction labour and we need to ensure that first-home buyers are given a better chance of accessing credit for housing.”

Why?

On the face of it, the low rate of building approvals is puzzling.

At a time when there is a huge shortfall of homes in Australia—a shortfall that has seen rents and home prices in most regions soar—you’d think large and small investors and developers would be rushing to fill the huge amount of unmet demand. 

The CEO of Master Builders Australia, Denita Wawn, puts it like this:   

“It's about a lot of things.” “It's about inflation being high.” 

“Building costs are nearly 40 per cent more than what they were pre-COVID, and when you combine that with the interest rate instability, people are just not willing to invest.” 

There is demand for housing Ms Wawn says, but describes it as “latent demand.” 

“It's not being realised because people are concerned about investing in building at the moment.”

“And we've got to the stage now where some builders are telling me they haven't got much in their forward books, because private homeowners and so forth are just not willing to spend money at the moment on housing,” she told SKY News.

Master Builders has also been an extremely vocal critic of the CFMEU - the controversial union that works on many large construction sites that have been mired in scandals, to the extent that an independent administrator will be appointed to overhaul the union’s Construction Division.

Denita Wawn says the union’s antics have also slowed the construction of many high-density housing projects.

“We're seeing now high rise, usually would take two years, it's now averaging three years for a high rise development.” 

“That's simply not good enough.” 

“They are (the CFMEU) adding a significant delay in the time it takes and price as well, and so that is a component of why we've seen such an escalation of costs.”

A glimmer of hope?

A slightly more optimistic take on the approvals figures for June comes from Maree Kilroy, the Senior Economist for Oxford Economics Australia.

“We have passed the worst for house approvals,” she says, “With monthly volumes running about 10% above a year ago.”

“We expect positive momentum to gain in 2025 with the pass-through of interest rate cuts and policy support at both the federal and state government levels.”

However, she cautions that “this improvement will be slow going, as entrenched trade labour shortages place an impactful speed limit on the early-stage recovery.”

Maree Kilroy also stresses that allowing for the normal rate of “drop-out” - approved projects not proceeding to completion - approvals now “need to average closer to 250,000 for the next five years.”

Now that’s a really ambitious target.