Australia set to face a decade low in new home construction by 2024

As another cash rate hike looms, the property market braces for a downturn, with the latest data from the Australian Bureau of Statistics indicating a tepid 1.2% growth in building approvals this October. This figure represents a concerningly low point, as overall dwelling approvals have slumped by 14% compared to the previous year, while detached house approvals have declined by 13% year-on-year and sit 9% below the long-term average.

Amid these discouraging statistics, multiunit approvals offered a glimmer of hope with a 19% increase over the month. Nonetheless, this sector is not without its woes, being 19% under the monthly average in the long term and trailing 12 months ago by the same margin.

The construction industry is sounding the alarm regarding its future vitality, especially as every state and territory gears up to meet the ambitious goal of launching the construction of 1.2 million new homes within the five-year period starting July 2024.

Tom Devitt, the senior economist at the Housing Industry Association, noted the severity of the present circumstances. “This [month’s figures] leaves house approvals over the last three months down by 11.2 per cent compared to the same quarter last year, and around its lowest levels of the last decade,” he said. Further, Devitt highlighted the smokescreen effect recent backlogs in construction work had in mitigating the immediate impact of the interest rate hikes initiated in mid-2022. “This pipeline is now shrinking and in 2024 home builders will be starting construction on fewer new houses than at any time in the last decade,” he added, suggesting that the Reserve Bank of Australia’s approach might have been too hasty.

The anticipation is that most of Australia’s excess inflation will be rectified by the year’s end, easing supply chains for building materials and fuel. Nonetheless, Mr Devitt warns, “The RBA’s interest rate increases will suppress home building and spending across the broader economy next year by much more than would have been necessary to get inflation over the line into the RBA’s 2–3 per cent target range.”

With Australia’s housing crisis becoming more acute, the Urban Development Institute of Australia’s national president, Col Dutton, underscores the urgent need for a spike in building approvals. He states, “The reality is that instead of unlocking land supply and fast-tracking approvals, we have fewer approvals than we did 12 months ago, and this needs to be reversed as a priority.”

Dutton further accentuates the disparity between approvals and actual completions, explaining that “UDIA analysis indicates that there is a 22 per cent attrition rate between approvals and actual dwelling completions, which means the drop in housing is greater than the numbers suggest.” He emphasizes that an immediate boost in housing supply is essential to support ordinary Australians grappling with cost-of-living pressures.