Dwelling approvals remained at their lowest level in over a decade after reporting another major drop in April.
Latest figures from the Australian Bureau of Statistics showed an 8.1% monthly decline in the total number of dwellings approved in April, deepening the fall experienced in March.
During the month, the total dwellings approved reached the lowest level since April 2012 and was driven by the slump in approvals for apartments.
Apartment approvals declined 16.5% to the lowest level since January 2012.
Meanwhile, detached house approvals went down 3.8% while renovation approvals dipped 1.2%.
In terms of location, Queensland, Victoria, and Western Australia all reported declines, with the sunshine state posting the biggest drop at 22.8%.
On the other hand, increases were recorded in South Australia, New South Wales, and Tasmania.
Housing Industry Association senior economist Tom Devitt said this continues the long-lagged response of Australian homebuyers to the Reserve Bank of Australia’s rate hiking cycle.
“The combination of construction cost blowouts, labour uncertainties, increased compliance costs and taxes on investors has seen approvals for multi-units fall,” he said.
“These disappointing approvals numbers are occurring as population growth surges with the return of overseas migrants, students and tourist — this imbalance will see the affordability and rental crisis deteriorate further.”
Two key supply issues
CommBank senior economist Belinda Allen said there are two key issues with the housing supply and the low level of approvals is one of them.
“The lack of new supply at a time when vacancy rates are low, household formation rates remain well below pre pandemic levels and rapid population growth will mean rents, and home prices will continue to face upward pressure,” she said.
The second issue is the delay in the completion of past approvals.
“There remains a large pipeline of work yet to be done, and not yet commenced which is delaying new housing to the market,” Ms Allen said.
“The length of time between approvals and completions is also getting longer.”
Westpac senior economist Matthew Hassan said the large backlog of work is the only thing preventing the weak approvals playing through to big falls in new dwelling construction this year.
“Whether this is a ‘saving grace’ or a ‘curse’ depends on your point of view – much of this backlog is activity associated with the Federal HomeBuilder stimulus during COVID that would have originally been quoted on ‘fixed price’ terms but has since become either unprofitable for the builder, renegotiated at a significantly higher cost or simply shelved,” he said.
“The stabilisation being seen in the wider housing market may eventually flow through to construction activity but it’s likely to be ‘too little too late’ to prevent a very difficult year for the residential building sector near term.”
Population versus supply
NAB economist Taylor Nugent said it is also crucial to note that the ongoing decline in approvals reflects a combination of factors, which include the impact of strong approvals during the pandemic that brought forward some demand, increased borrowing costs, elevated and uncertain building costs, and a residential construction sector limited by capacity constraints.
“In terms of larger residential developments, anecdotes from developers are that uncertainty about the availability of both material and trade inputs are one factor. The more challenging funding environment is also likely a factor with reports of less demand for off-the plan sales,” he said.
Furthermore, the trend decline in dwelling approvals stands in stark contrast to the recent pickup in population growth.
In fact, Australia’s population increased 497,000 over the past year while the rolling annual level of approvals is running at 178,000.
“New dwelling approvals surged relative to population growth over the pandemic with approvals elevated and population growth having slumped. The reverse is playing out now,” he said.
Mr Nugent said a sharp pick-up in housing supply is unlikely in the near-term given the trend in approvals and the backlog of work yet to be completed. This provides little relief for renters and buyers.
“Recently, advertised rental growth has been strong, while house prices have risen over recent months. Meanwhile, higher prices for rents and dwellings will see some adjustment to residential space per person and the number of people per dwelling,” he said.
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