Dwelling approvals data shows ongoing signs of weakness

The latest Building Approvals data released by the Australian Bureau of Statistics (ABS) has revealed a decline of 1.9 per cent (12,520 dwellings) in total dwellings approved during February, despite a lift of 10.7 per cent for private house approvals.

This month’s fall in total approvals followed a 2.5 per cent decline in January 2024.

ABS head of construction statistics Daniel Rossi said: “Approvals for private sector dwellings excluding houses fell 24.9 per cent in February in seasonally adjusted terms, driven by a fall in the number of approved large apartment projects.”

In seasonally adjusted terms, approvals for total dwellings rose in most states, with Tasmania taking the lead at 39.3 per cent, followed by NSW (23.4 per cent), South Australia (15.4 per cent), Victoria (2.1 per cent), and Western Australia (0.9 per cent).

However, Queensland recorded a decline in total dwellings approved of 28.5 per cent.

Commenting on the data, Commonwealth Bank of Australia (CBA) senior economist Belinda Allen said that “Australia is not building enough homes to meet demand”.

“Capacity constraints and a rapid increase in costs are plaguing the residential construction industry. We are seeing the impact flow through to prices for existing homes and the rental market,” Allen said.

“Comparing annual building approvals per 1,000 people illustrates the low level of new housing stock being approved. The impact is coming through in higher home prices.

“Higher interest rates are also constraining the level of building approvals. Much of this reflects funding costs for developers and builders. Our expectation for interest rate cuts later this year and next year should provide some support if other challenges settle.”

Housing Industry Association (HIA) senior economist Tom Devitt said detached housing approvals over the last three months are still down by 3.3 per cent on the same quarter last year and 37.9 per cent down from the peak three years ago.

“The bounce back in detached house approvals from January disguises the continuing weakness in Australia’s housing market,” Devitt said.

“Recent leading indicators, such as new home sales, are still struggling to indicate any significant recovery in new home building. This is especially so in NSW and Victoria, where land costs are particularly burdensome for new home buyers.

“Demand for new housing has been falling since the RBA started increasing interest rates in May 2022.”

Devitt continued that while it is still possible for the Australian government to achieve its 1.2 million new homes target by 2029, it would “require significant policy reforms which include lowering taxes on home building, easing pressures on construction costs and decreasing land costs”.

Government urged to act fast on housing supply issue

Concerns have been mounting from Australia’s property organisations, which have urged the federal government to do more to address the persistent housing supply issue in order to reach its 1.2 housing target.

Master Builders Australia chief executive Denita Wawn stated that the cost of housing is one of the primary sources of inflationary pressure across the economy.

“For owner-occupiers, the price of new dwellings is 4.9 per cent up on a year ago. This is partly the result of cost pressures in the new home building market,” Wawn said.

“It’s further evidence that if we are to win the battle against inflation, we need to pull out all stops to build new homes.

“Building approvals are too low, meaning more needs to be done to encourage new housing supply.

“Whether it’s detached housing or higher density, the same constraints apply, including planning restrictions, lack of capacity to undertake critical infrastructure so land is home building ready, high taxes and charges, slow approval processes, and workforce shortages.”

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