Building approvals rise, but challenges persist for 1.2 million home target

Scott Kuru July 4, 2024 5 min read

KEY POINTS

The latest Building Approvals figures show the number of homes approved in May 2024 rose 5.5%
However, in the year to May, just 164,000 new homes were given the green light in Australia
240,000 homes need to be built each year over the next five years to achieve the National Housing Accord target of building 1.2 million “well-located” homes
Experts point to a shortage of building workers, town planners and construction firms who specialise in high-density buildings like apartment blocks, complicating the ambitious quest

New data shows that there’s been a small rise in the latest housing approvals figures, but builders have warned Australia is on track to fall well short of the number of homes required to house a growing population.

The dwelling approvals figures for May from the Bureau of Statistics are the first real piece of housing construction data to be released after the official start on July 1st of the National Housing Accord’s 5-year target to build 1.2 million “well-located” homes.

The details

The ABS says the total number of homes approved in May 2024 rose 5.5% to 14,175 on a seasonally adjusted basis, following a 1.9% rise in April.

Approval for private houses rose 2.1% to 9,163, while private sector dwellings excluding houses (the category which includes apartments and other attached dwellings like townhouses) rose 16.3% to 4,858.

However, the number is 8.5% down on an annual basis.

Building industry group Master Builders described the latest set of approval numbers as “a glimmer of hope”, with Chief Economist Shane Garrett noting detached house approvals were at their strongest monthly total since October 2022.

He also welcomed a big jump of 14.2% in higher density home building approvals, which he said was “a particular area of the market that needs to see a significant increase in activity.”

“However, over the year to May 2024, just 164,000 new homes were given the green light, well below the 240,000 needed per year (to reach the 1.2 million new homes target).”

The last time Australia got close to building 240,000 new homes in twelve months was in 2017 when 223,563 dwellings were constructed.

It’s also worth noting that there is a difference between the number of dwellings that are approved and the number of dwellings actually completed.

Research done by CoreLogic in 2020 shows that around 95% of private houses approved are actually completed, while only 85% of apartment developments proceed.

“If new home building levels remain this low, we will only manage to build 820,000 over the next five years,” Shane Garrett said.

Master Builder CEO Denita Wawn said it was clear Australia was not “race ready” in the first few days of the Housing Accord quest to build 1.2 million homes.

The National Housing Accord is an agreement struck in 2022 between the federal, state and local governments, institutional investors and the construction sector, which had an initial “aspirational” target of delivering 1 million “well-located” homes over 5 years from July this year.

That target was updated to 1.2 million dwellings at a meeting of the National Cabinet in August 2023.

“Governments have had over 600 days to align all policy levers and help put the industry in the best possible position to build enough new homes,” Ms Wawn said.

“While there’s been some progress at a state and federal level, particularly in the housing portfolios, it has simply not been fast enough or is being undermined by other policies.”

“Industrial relations laws, worker shortages, slow planning approvals, a lack of critical infrastructure, high developer taxes and charges, and licensing delays all add to the cost and time it takes to build,” she said.

Where are the tradies?

Ms Wawn and a number of other industry players and commentators have again highlighted the dire shortage of construction workers in Australia as a key problem.

Earlier this year, BuildSkills Australia, the construction workforce body set up by the federal government to work with industry and unions, estimated the country would need an additional 90,000 tradies this year alone to meet that 1.2 million homes target.

However, data from the National Centre for Vocational Education and Research has found the number of Australians starting apprenticeships in the construction trades fell 22% to 41,935 in 2023, as many Covid-era incentives for employers to take on younger workers ended.

Ms Crabb also highlights the number of mid-tier construction firms—the types that build medium-density apartment buildings—that “are dropping like flies.”

According to ABC political commentator Annabel Crabb, there were 376,800 tradies in Australia in 2012.

By 2020, there were only 134,800.

“Australia's tradie workforce is ageing and overworked,” she wrote in a piece looking at the “aspiration” of building 1.2 million homes by the 30th of June 2029.

And it’s not just tradies…

“By March, according to ASIC,” she says, “1,913 construction companies had so far gone bust this financial year.”

“Three times as many as at the comparable point in 2021/22.”

She also points out that “well-located, medium-density housing usually entails careful planning.”

Only Australia also has a dire shortage of town planners.

“Matt Collins, the Planning Institute of Australia's chief executive, recently warned that there are now 232 local government areas (or 43% of all councils) in Australia where no planners are working at all,” she wrote.

The take-out

Perhaps the sharpest illustration of the housing problem facing Australia comes in the graph above from the Reserve Bank, which shows the trend of dwelling completions versus estimates of “underlying demand” for housing.

The bounce-back in demand after international borders were re-opened following the COVID-19 years is clear.

At the same time, the pandemic hastened a trend in Australia of fewer people per household.

According to the Property Council of Australia, only 963,064 homes were completed over the last five years.

And while “aspirational” targets are great, it’s clear too many stars will have to align perfectly to achieve the 1.2 million homes target.

With margins squeezed because of persistent high interest rates and the soaring cost of construction materials, the building industry is starting the “race” with a lot more of a handicap than just a small pebble in one of its shoes.

What this all means is the continuing imbalance between supply and demand for housing in Australia will continue indefinitely, keeping upward pressure on rents and home prices.