New Housing Approvals Plummet to Decade Low, Deepening Australia’s Housing Crisis

Men work on a construction site, building new apartments in Melbourne on April 4, 2023. (Photo by William WEST / AFP via Getty Images)

New housing approvals across Australia continued to decline in April, plummeting to its lowest level in  11 years. The implications for housing supply deepen the concerns that the rental and affordability crisis would deteriorate further.

The total number of dwellings approved nationally fell 8.1 percent in April to a seasonally adjusted 11,594, the lowest level since 2012 April, according to the May 30 data released by the Australian Bureau of Statistics (ABS). This follows a one percent decrease in March.

The overall decline is driven by a double-digit shrink in approvals for multi-units ( dwellings excluding detached houses), with the number of approved apartments, townhouses and semi-detached houses down by 16.5 percent to 3545, the lowest figure in 11 years.

The detached house sector also suffered further weakness in April, with new approvals recording a 3.6 percent drop, following a 3.7 percent decrease in March.

On a quarterly basis, detached house approvals dropped by 15.4 percent in the three months to April compared to the same period last year, and multi-units were down by 38.9 percent.

Housing Crisis Expected to Deepen

The lacklustre figures came amid the deteriorating rental crisis across the nation, with tenants facing rapidly rising rents as the supply of available properties dwindles significantly.

The latest housing affordability report by ANZ and property data provider CoreLogic shows that the rent-to-income ratio nationally surged to 30.8 percent in March, the highest level since June 2014.

Tom Devitt,  Senior Economist of HIA (Housing Industry Association ), attributed the approval decline to the effect of the economic headwinds, which are set to persist for some time.

“This continues the long-lagged response of Australian homebuyers to the RBA’s interest rate hiking cycle, with further declines expected in the coming months,” he said in a statement.

“The combination of construction cost blowouts, labour uncertainties, increased compliance costs and taxes on investors has seen approvals for multi-units fall.”

He warned that the continuing approval decline would exacerbate the rental crisis.

“These disappointing approvals numbers are occurring as population growth surges with the return of overseas migrants, students and tourists,” he said.

“This imbalance will see the affordability and rental crisis deteriorate further.”

The RBA governor Philip Lowe expressed the same concern.

Appearing before a Senate estimates hearing on May 31, Lowe warned that there were not enough homes being built to keep pace with population growth as the return of overseas migrants and international students is forecast to increase the population by two percent.

“Are there two percent more houses? No,” he said.

RBA is forecasting rents will grow about 10 percent, and Lowe said some were faring worse due to low supply.

“It’s very tough,” he said. “Some people are experiencing bigger increases than that. The bigger issue here is supply and demand. The vacancy rates are very low.”

Grim Outlook for Housing Industry

The weakness in approvals reflects multiple challenges constraining the new housing development, which is experiencing a slowdown in both new home sales and construction activities.

In its latest quarterly industry Outlook report released on May 18, HIA predicates that the new home-building activities will keep shrinking until the next year.

“Despite record levels of migration, the number of new homes commencing construction is set to slow for at least the next 12 months,” stated HIA Chief Economist Tim Reardon.

He said the building activity is drying up as new home sales volumes have almost halved since the interest rates started to go up last year. In the meantime, there has been a rapid slowdown in the volume of new building projects entering the pipeline, especially new apartments.

“Leading indicators of home building activity have fallen to exceptionally low levels, ” he said. “New home sales are almost 50 percent lower than a year ago. Lending for the purchase or construction of a new home has fallen to its lowest level since 2008.”

“The rise in the cash rate is the key reason for the slowdown in the number of new homes commencing construction. There are long lags in this cycle, and the full Impact of the increases to date will not be apparent until late 2024.”

While recognizing the impact of lending curbs on the industry, Reardon points out other chronicle constraints.

“Beyond the rise in the cash rate, the supply of new homes is also constrained by a range of regulatory and cyclical challenges, ” he said. “Removing barriers to investment, reforming local council planning processes and stable economic settings are also necessary steps.”