High-density approvals reach 12-year low

The Australian Bureau of Statistics (ABS) has released its Building Approvals, Australia report for March 2024, revealing that dwelling approvals increased (in seasonally adjusted terms) by 1.9 per cent in the month, to 12,947, following a 0.9 per cent reduction in February.

Source: ABS Building Approvals, Australia; Dwelling units approved (a)

The ABS revealed that Victoria and Western Australia were the only two states to see an increase in total dwelling approvals (at 3.2 per cent and 1.5 per cent, respectively), while South Australia saw approvals drop by 7 per cent, Queensland had a 5.2 per cent decrease, and NSW had a 1.2 per cent reduction.

Tasmania had the largest fall in approvals, with a significant drop of 18.1 per cent in total dwelling approvals.

But while total approvals rose, the data showed that high-density dwellings – such as semidetached houses, town houses, terrace houses, and apartments – reached a 12-year low in March 2024.

The ABS data showed that 3,936 private sector high-density dwellings were approved over the month (an increase of 3.6 per cent rise following the 24.7 per cent decrease in February, which was a 12-year record low), but – when incorporating all sectors – the total number was 3,965.

The last time approvals in this sector reached sub-4,000 levels was in July 2012 when approvals were 3,865.

The ABS said that higher construction costs had continued to weigh on dwelling approvals.

Westpac economist Ryan Wells said of the figures: “At face value, March’s lift in headline approvals was not as strong as expected, but its compositional detail suggests that the more-volatile private units segment may be playing a larger role.”

How will the government reach housing targets?

Looking just at private housing figures – a key point of focus at the moment given the growing concern for housing undersupply – the ABS stats showed that private sector housing approvals rose 3.8 per cent in March, after a 12.4 per cent increase in February.

A total of 8,891 houses were approved in March 2024, with all states seeing an uptick in housing approvals except Western Australia (which had a 1.8 per cent deduction).

However, Shane Garrett, chief economist at Master Builders Australia, said that the ABS data revealed that only 161,500 homes had been approved over the past year, substantially below the government’s target to build 1.2 million homes over the next five years.

Garrett said the building approvals data “painted a concerning picture of the nation’s housing crisis” and that “more growth was needed in the high-density sector”.

Blair Chapman, a senior economist at ANZ, said that he expected approvals to grow throughout 2024: “We expect building approvals to grow over the remainder of the year as housing prices rise and labour shortages ease.”

Commonwealth Bank of Australia said in its economic update that higher interest rates were impacting building approvals. The major bank said: “Higher interest rates are 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.”

Master Builders chief executive Denita Wawn said: “Despite the will of governments to get home building activity moving, there are still too many obstacles in our way.”

Speaking on the underlying causes of low dwelling approvals, Wawn said: “Chronic tradie shortages, planning and licensing delays, draconian industrial relations changes, material cost inflation, inefficient regulation, unfeasible lending practices and risk allocation are making projects unsustainable.

“We have to make it easier to build new homes by bringing down the cost of construction. This must be a priority in the upcoming Federal Budget.”

The Housing Industry Association’s chief economist Tim Reardon said it was possible to meet the government’s target of 1.2 million homes in the next five years provided it “lowers taxes on home building, reduc[es] land prices and eas[es] pressure on construction expenses.”

Indeed, the ABS data showed that the average approval value for a new house rose by 4.2 per cent compared to March 2023, to $468,000.

Queensland had the most significant increase in average approval value, 10.1 per cent, followed by Western Australia, with a 4.2 per cent increase. NSW had an average approval value increase of 3.5 per cent, as did Victoria (3.5 per cent) and South Australia (0.4 per cent).

Reardon said: “Rising interest rates [are] the key factor slowing building activity, but there is an increased divergence evident in some states. Those able to deliver low-cost land are seeing more modest slowing in activity.”

[Related: Financial hurdles impacting dwelling approvals: Economist]