Australian dwelling approvals:Private houses up a touch, but it’s far from enough
Total dwelling approvals –6.1%mth, 3.6%yr. A long way off unlocking the housing supply needed to take the pressure off prices and rents.
The flow of new residential dwelling approvals across the country continues to suggest we are a long way off unlocking the housing supply needed to take the pressure off prices and rents. The current rolling 12-month pace of dwelling approvals is sitting around 166k, near the lowest since 2013. This is well short of the 240k annualised pace of dwelling construction needed to hit the Federal Government’s 2029 goal of building 1.2 million new homes.
In August, new dwelling approvals fell 6.1% with volatility in high-rise apartment approvals the familiar culprit driving the month-to-month variation. Looking through the volatility, the number of new approvals remains around the lowest levels recorded in over a decade.
Private sector house approvals have passed their nadir and have established a gentle uptrend since early 2023. This continued in August with private sector house approvals up 0.5% in the month to be around 20% above the cycle lows. Though this is more a reflection of just how deep new approvals sank rather than an encouraging sign of resurgence. WA has recorded the strongest improvement in this segment with the price signal from higher prices and rents the most supportive on the West Coast. Queensland and Victoria have seen freestanding house approvals lift to a lesser extent, while in NSW, new private sector house approvals are at their lowest level since the end of 2013 in 6-month moving average terms.
More generally, we have seen a response to higher prices and elevated rents in WA, where approvals are more than 70% above the trough recorded in early 2023 – in other states this improvement has been more gradual, and non-existent when it comes to Tasmania where approvals continue to fall.
There has been no meaningful improvement in new approvals for higher density dwellings. Multi-density approvals fell 17.5% in August, a large fall on first glance but nothing abnormal in the context of recent swings. Looking through the inherent volatility in higher-density approvals, which were again underpinned by high-rise developments, approvals for multi-density remain in the doldrums and are around decade lows in every major state across the country.
This comes as little surprise given the headwinds dragging on new housing supply. Elevated costs, significant completion risks, uncertain timing and broader challenges in the construction sector are all magnified as the scale of projects increase. A more palatable risk profile will likely see freestanding houses continue to lead the supply cycle.
The upshot is that a significant lift in new housing supply is a long way off. The gentle upswing in freestanding house approvals is a positive that should not be ignored, but this is being driven by a slightly more appetising risk/reward profile as prices and rents continue to soar, rather than an improvement in the underlying roadblocks holding up new housing supply.
As affordability increasingly becomes a binding constraint on dwelling prices and rents across the nation, there will be less scope to rely on a price signal to promote new dwelling investment. Addressing underlying construction costs and constraints will be necessary for a broader improvement in housing supply to manifest.
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