Hopes the Albanese government will be able to revive housing construction are fading fast as new approvals sink to the lowest number in more than a decade, while soaring costs threaten to place any homes that are built out of reach for many.
December recorded a drop in dwelling approvals of almost 10% from November, the Australian Bureau of Statistics reported on Thursday. Approvals for apartments sank 25.3%. For the full year, approvals totalled about 162,200 – the lowest annual rate since March 2013, according to NAB.
The Housing Industry Association estimates work began on about 100,000 new houses and 70,000 multi-unit homes in 2023.
Tom Devitt, HIA’s senior economist, predicts new house construction will retreat further this year to 95,400 – the lowest since 2012. New apartment construction should grow to 84,400. Still, the combined tally of 179,400 homes would reach only 75% of the federal government’s goal of 1.2m new dwellings over five years from 1 July.
“On the current trajectory, that [target] is not going to be achieved on the present policies,” Devitt said. “All three levels of government need to be on the same page.”
Over the past five years, an average of about 190,000 new dwellings commenced. The HIA expects that rate to increase to almost 200,000 a year for the coming five years, missing the government’s targets by just over a fifth, or 200,000 dwellings, Devitt said.
Home prices and rents increased by more than 8% nationally on average in 2023, or about twice the pace of inflation. The upward trend has continued into January.
The country’s soaring population meant a record of four people per new dwelling approval – more than double the average density of 1.5 people since 1985, NAB noted this week.
“Unfortunately, a supply fix is not coming in a hurry,” said Tapas Strickland, NAB’s head of market economics. “To put the government’s aspirational target for 1.2m homes over five years in reach, building approvals would need to return to levels achieved through the 2015-17 east coast apartment building boom.”
A December quarter survey by the bank found 75% of participants listed construction costs as a barrier to starting new residential projects, with the ratio rising to 83% in Victoria and 89% in Queensland. Interest rates were cited as a hurdle by 59% of respondents.
Another obstacle was delays in obtaining planning permits, as cited by 46% of those surveyed. This proportion, though, rose to 67% in Queensland and New South Wales.
One large developer told Guardian Australia lengthy and uncertain planning approvals were a greater hindrance than interest rates, labour shortages or more costly materials.
One of its big projects in Sydney took a decade to finish, with multiple changes required to meet local approvals. While planning was quicker in Melbourne, demand in the Victorian capital was relatively weak, squeezing profit margins.
Dale Connor, chief executive of Lendlease Australia, another big developer, said the 1.2m homes target was steep, “particularly when our industry is experiencing labour shortages, but it needs to be ambitious given the current housing crisis”.
“[T]he question isn’t how do we pour concrete and build houses faster, it’s how do we get to the start line quicker, especially in Sydney which is attractive to capital investors but has the longest planning approval time of all the states,” he said.
Planning approval takes Lendlease about six months in Brisbane, 12 months in Melbourne and three years in Sydney.
“If we get the planning right, the capital will follow and more homes will be built,” Connor said.
New South Wales’ share of the five-year target is about 377,000, or just over 75,000 new homes a year.
“The NSW government is starting from a long way back but has taken immediate action to turn around housing completions of the low base of only 48,000 homes delivered in 2022,” the planning minister, Paul Scully, said.
“We announced reforms to the planning rules in December last year to support the delivery of thousands of new homes and a pipeline of housing supply into the future and are determined to meet our housing goals,” he said.
For Victoria, about 53,000 new homes gained approval for construction in the 12 months to last November.
“We’ve set a bold target for 800,000 homes to be built in Victoria over the next decade because we know that housing only becomes more affordable when you increase supply,” a Victorian government spokesperson said.
“We’ve given industry the certainty they need and in the time since releasing the Housing Statement we’ve received record levels of inquiries from industry for developments worth billions of dollars in investment and worked with councils to clear more than half the backlog of planning permits waiting for more than six months for a decision,” the spokesperson said.
To Kerry Pearse, a member of the Housing Matters Action Group advocating for residents across the NSW north coast, adding more supply won’t make much difference if the asking price exceeds what local wages can bear.
“We’re in a huge economic crisis,” Pearse said, adding that families were being forced to share accommodation or leave the area. “It’s a pressure cooker that’s leading to significant hardship and pockets of resentment”.
Nurses, police, council workers and even cafe staff were struggling to afford housing in towns such as Bellingen and Nambucca Heads on current wages, Pearse said. Policies that had favoured investors over owner-occupiers hadn’t helped either.
“It’s a wicked problem due to historic decisions regarding tax incentives, et cetera,” Pearse said. “We are now reaping the impact.”
