Australia's Housing Crisis: Building Approvals Hit Decade Low

Building approvals for the 12 months to October plunged to a decade low, according to new data released by the ABS.

In the year to October, 166,236 dwellings were approved - well below the 200,000 required to meet the government’s 1.2 million new home target, and 14 per cent lower compared to the same time last year.

The last time annual figures were this low was back in 2013, when only 165,325 homes were built, according to News.com.

While dwelling approvals experienced a mild uplift over October - up 7.5 per cent compared to September, the market for detached homes remained subdued. Approvals for private sector houses were up 2.2 per cent during October, but down -8.1 per cent over the year prior.

It paints a concerning picture of Australia’s current housing crisis, with rents rapidly rising and the cost of buying a home continuing to skyrocket, at the hands of constrained supply and unprecedented demand.

But what’s even more concerning is that, as REA Group’s Anne Flaherty pointed out on SkyNews, building approvals are a ‘best case scenario’, and don’t directly convert to homes on the ground. 

“Drop in housing greater than the

number suggests”

Detached house approvals were 9 per cent lower than their long-term average in October - at a time when Australia should be building more homes than ever before. 

With building completions sensitive to a range of variables, including material costs and labour availability (which have recently experienced their challenges), it’s important to consider that dwelling approvals can be a severely inflated indication of future supply. 

The Urban Development Institute of Australia (UDIA) quantified this effect.

“The reality is that instead of unlocking land supply and fast-tracking approvals, we have less approvals than we did 12 months ago and this needs to be reversed as a priority,” said UDIA CEO, Col Dutton.

“UDIA analysis indicates that there is a 22 per cent attrition rate between approvals and actual dwelling completions, which means the drop in housing is greater than the number suggests. 

“We urgently need to boost housing supply across the entire continuum and especially housing for the vast majority of ordinary Australians facing cost of living pressures,” said Mr Dutton.

Activity differing from state to state

While the overall trajectory for building approvals trended downward, a nuanced state-by-state analysis reveals intriguing variations.

Western Australia, Queensland, and New South Wales emerged as front-runners, boasting the highest total dwelling approvals monthly change at 11 per cent, 10.7 per cent, and 9.6 per cent, respectively, as reported by the ABS. However, Tasmania (-14.4%), South Australia (-7.2%), and Victoria (-1.4%) played a contrasting role, contributing to the decline in the overall figures.

In approvals for private sector houses, Western Australia took the lead with an impressive uptick of 11.7 per cent. Yet, the narrative took a turn as Queensland (-3.4%) and New South Wales (-4.9%) assumed the roles of detractors, impacting the positive momentum.

However, transcending the state-specific performances, a prevailing factor contributed to the shortfall of building approvals - the unit sector. 

October witnessed a substantial setback, with multi-unit apartment approvals plummeting by a staggering 31 per cent compared to the long-term average. It's a notable downturn, signalling challenges within the apartment construction landscape.

Experts warn of worsening housing crisis 

October’s building approval data triggered calls from multiple industry experts for an urgent and concerted effort to encourage greater volumes of new builds.

Master Builders Australia CEO Denita Wawn criticised recent industrial relations reforms pushed by the Albanese government and the Greens as measures that will worsen the crisis.

“Unless we make concerted efforts to quickly boost housing supply and reduce the cost of building new homes, we will continue to see the housing and rental crisis worsen,” said Ms Wawn.

“While some states and territories are making strides at the planning level, the Federal Government is adding extra cost layers to building through their new IR laws, undermining the efforts of housing ministers.

“This week we saw the Albanese Government and the Greens brush off the housing crisis and pass damaging reforms that threaten the rights of independent contractors, subcontractors, and self-employed tradies to be their own boss.

“It’s now up to the Senate to allow common sense to prevail and stop this Bill,” said Ms Wawn.

The Housing Industry Association’s senior economist, Tom Devitt, pointed the finger at the RBA’s recent rate hiking cycle as the factor most likely squashing building approvals.

“RBA’s punishing round of rate hikes had weighed heavily on the industry. Australian home builders had a significant pipeline of work under or awaiting construction when the RBA started increasing interest rates in May 2022,” said Mr Devitt.

“This pipeline has kept Australians employed and the economy going for over a year, obscuring the impact of the sharpest rate hiking cycle in a generation. This pipeline is now shrinking and in 2024 home builders will be starting construction on fewer new houses than at any time in the last decade.”

Regardless of who or what is to blame for Australia’s housing crisis, one thing is for sure - it’s set to worsen, and without drastic change, housing and rental costs will continue to be at the mercy of high demand and dismal supply. It’s not looking good for the government’s 1.2 million new home target, either.