Building approvals rise in 2024/25, yet challenges remain
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Photo by Valentin Antonucci
In a promising sign for the Australian housing market, new home building approvals have surged by 13.9 per cent in the 2024/25 financial year compared to the previous year’s low point. This data, released by the Australian Bureau of Statistics, highlights a significant upswing in both detached house and multi-unit approvals across the nation.
HIA Senior Economist Tom Devitt commented on the positive trend, stating, “New home building approvals in the 2024/25 financial year were up by 13.9 per cent compared to their 2023/24 trough.” This resurgence is seen as a response to several economic factors, including strong population growth, tight labour markets, and recovering household incomes, which have bolstered confidence in the housing market over the past 18 months.
The detailed breakdown of the approvals shows a 6.1 per cent increase for detached houses and a substantial 27.9 per cent rise in multi-unit approvals. Mr Devitt elaborated, “Detached house approvals increased by 6.1 per cent in the financial year, while multi-unit approvals were up by 27.9 per cent.” This growth has been particularly pronounced in Western Australia, Queensland, and South Australia, regions that have led the charge in housing recovery.
Interest rate cuts by the Reserve Bank earlier this year have also played a crucial role in reviving market interest. The cuts, implemented in February and May, have raised expectations for further reductions, potentially drawing more homebuyers into the market, especially in the more expensive states and territories. Mr Devitt noted, “Interest rate cuts from the Reserve Bank in February and May this year, with the expectation of more to come, will help bring more potential homebuyers back to the market in the lagging – and often more expensive – states and territories.”
Despite these positive developments, the path to meeting the Australian Government’s ambitious housing targets remains fraught with challenges. The government aims to approve 1.2 million homes over five years, yet the 2024/25 financial year saw only 187,330 new homes approved. Mr Devitt expressed concern, saying, “The challenge will be turning this modest improvement in conditions into the kind of recovery that will meet the Australian Government target of 1.2 million homes over five years.”
The disparity between approvals and actual commencements is a significant hurdle. Many approved projects never break ground, and the current rate of construction falls short of the required 240,000 homes per year. Mr Devitt warned, “Even with lower interest rates, Australia is set to start just 200,000 homes per year, on average, over the next four years.”
A critical aspect of meeting these targets is the multi-unit sector, which needs to expand significantly. “Multi-unit activity, in particular, needs to do more heavy lifting. Multi-unit commencements need to double from current levels in order to achieve the government’s housing targets,” Mr Devitt explained. However, he pointed out that existing policies are not conducive to such growth. “This is unlikely to occur under current policies. Labour and land shortages, obstructionist regulations and punitive surcharges on institutional investors have pushed improving sentiment away from apartments back into the detached housing sector.”
For a sustained improvement in the multi-unit segment, a reduction in policy burdens or a significant increase in home prices is necessary. Mr Devitt concluded on a cautionary note, “Sustained improvement in multi-units activity will need to come from a reduction in policy burdens on the sector, or a re-acceleration of home prices until new projects are viable against higher policy costs, the latter not boding well for affordability.”
Regionally, the data reveals varied performance across states. Western Australia and South Australia saw the most significant increases in new dwelling approvals, with rises of 32.3 per cent and 28.7 per cent, respectively. Other states like New South Wales and Queensland also experienced growth, while Victoria saw a more modest increase. Conversely, Tasmania experienced a decline of 9.9 per cent, and the Australian Capital Territory faced a significant drop of 39.9 per cent in original terms, though the Northern Territory managed a 22.5 per cent increase.
These figures underscore the complex landscape of Australia’s housing market, where growth is evident but challenges persist in meeting long-term housing objectives.