A recent submission by the Grattan Institute said building 50,000 homes per year will make house prices more affordable.

The number of dwellings that were given the green light to commence construction has increased for the first time in five months.

Figures from the Australian Bureau of Statistics (ABS) showed a 6.8% growth in dwelling approvals in August, ending four consecutive months of decline.

The bounce-back was driven by the strong uptick in the approvals for semi-detached dwellings, apartments, and townhouses, which posted a monthly growth of 13.7%.

ABS director of construction Daniel Rossi said approvals for detached dwellings also increased, up by 3.5%.

"The August result indicates that approvals for detached housing remain strong despite the unwinding of stimulus measures in April and the on-going lockdowns in New South Wales and Victoria," Mr Rossi said.

On the back of low interest rates, increased household savings and confidence in the housing market, approvals for the private housing sector increased by 23.8% on an annual basis.

Overall, there were 18,716 dwellings approved for construction in the month.

Why this might be good for housing affordability

Grattan Institute recently made a submission to the parliamentary inquiry into housing affordability in Australia.

In the submission, Grattan Institute economic policy program director Brendan Coates wrote that Australia has yet to build enough housing to meet the needs of the growing population.

"Home ownership rates are falling. Without change, many more young Australians will be locked out of the housing market,” Mr Coates said.

“Owning a home increasingly depends on who your parents are, a big change from 35 years ago.”

Data from the Grattan Institute showed that Australia has just over 400 dwellings per 1,000 people.

Mr Coates claimed that aside from Australia having the least housing stock per adult in the developed world, it is also one of the few countries whose housing stock per capita has been stagnant in over two decades.

"The mismatch between supply and demand has created a ‘zoning premium’ for well-located housing that benefits existing property owners, but imposes additional costs on new purchasers and renters," he said.

Building an additional 50,000 homes every year per decade could potentially make house prices and rents 20% lower than they would have been otherwise.

"Without a concerted effort to boost housing supply in Australia, housing affordability will likely get worse," Mr Coates said.

Another recommendation stated in Grattan Institute's policy submission is reforming tax policies to lessen the demand for homes.

"It should reduce the capital gains tax discount from 50% to 25%, abolish negative gearing, and include owner-occupied housing in the Age Pension assets test," Mr Coates said.

"The effect on property prices would be modest – they would be roughly 2% lower than otherwise – and would-be homeowners would win at the expense of investors."

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