Australia’s housing shortage: a critical look at falling approvals

The housing sector in Australia is at a crossroads.

With housing approvals at their lowest since August 2009, we're facing a situation where the current housing shortage could worsen unless decisive action is taken.

The challenges at hand

Several factors are creating a perfect storm in the housing sector.

According to Eleanor Creagh, Senior Economist at PropTrack, "Higher financing costs, a surge in material and labour costs, and an increase in insolvencies within the building industry have contributed to a significant decline in new project approvals."

Ms Creagh believes that this downturn isn't just a blip on the radar; since late 2021, approvals have consistently trended downward.

In fact, according to ABS data, the 12 months leading up to January 2024 saw a 13.3% decrease compared to the previous year, reaching a troubling decade low with just 166,401 new dwellings approved.

Ms Creagh said that a crucial point to understand is that approvals don't always translate into completions.

Historically, about 17% of approved projects haven't materialized, a trend that's been more pronounced in the last two years.

This gap is partly due to the slower pace of building and a backlog of approved homes still awaiting completion.

On average, it takes just over three months from approval to commencement for houses, with townhouses and apartments taking longer.

Once construction begins, a detached house typically takes just over nine months to complete, with longer times for other types of dwellings.

Government initiatives vs. reality

The federal government aims to address the housing shortage, targeting 1.2 million new homes by 2029.

However, the reality is starkly different.

With current completion rates lingering around 170,000 new homes per year, we're falling short of the necessary numbers to meet this target.

Ms Creagh notes:

"This shortfall in construction means we're likely to continue seeing both a scarcity of homes to buy and rent.

Increasing the housing supply is vital for addressing the decline in affordability, a challenge that is only intensifying with Australia's strong population growth."

The road ahead

According to Ms Creagh, to meet the housing needs of our growing population, we must address barriers in homebuilding, from approvals to completion.

This requires a concerted effort to ease construction capacity constraints and reduce building costs.

We stand at a critical juncture where reforms are needed to bolster homebuilding and ensure that sufficient housing is attainable for all Australians.

About Adam Hubbard Adam Hubbard is a senior Wealth Strategist at Metropole and his many years of real estate and wealth creation experience gives him a holistic perspective with which he helps his clients safely grow their wealth through property.