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Falling housing approvals demonstrate difficulty of reaching 1.2 million target

Australia’s dwelling approvals fell to 160,844 separate approvals for the year-ended March 2024, down 11.9% on a year earlier. The data, which shows only limited signs of bottoming out, is grim reading for a nation desperate to produce an average 240,000 new dwellings per year from the start of July. The reality is that right now, we are way behind what we need to do to reach the national targets.

Failure to even come close to admittedly lofty targets is a bleak scenario for a country that has long prided itself on an identity of shared prosperity, underpinned by a dwelling for all. It could be said this has been a principal tenet of the Australian existence since Federation.

What it means for the fabric of a cohesive nation for some people to be without a dwelling and with limited prospect of getting one is uncertain but it cannot be good. Little wonder this is the barbecue conversation of the modern day.

Despite the national focus and the genuine goodwill that seems to exist around the idea of building a whole lot more dwellings, there is less agreement about how to get the job done. Sadly, where consensus does lie, is in the evidence of likely failure. As Michael Bleby wrote in the Australian Financial Review, the Government’s:

“…target of 1.2 million new homes in the next five years has been shot down by its handpicked national council which forecasts a shortfall of nearly 300,000 homes, aggravating existing shortages and affordability problems.”

The simple fact is that the current trajectory for new housing approvals would have to do a 180 degree turn for the target to become achievable, and the system of work would have to go full steam for five years to deliver the approvals, let alone land the dwellings themselves.

The good news is that underlying demand is strong, even if capacity is not. We may be beginning to see the edges of that reality and who knows, perhaps the engine is big enough to sustain five years of unparallelled approvals and building activity.

On a monthly basis, approvals of houses were up 3.6% and total dwelling approvals rose by 1.9% in March. We take caution however: monthly housing data is always a volatile series – one month does not a trend make!

Turning to the states, Victoria was still the largest State for dwelling construction with year-ending approvals totalling 50,880, but as the previous item in this edition of Stats Count identified, it is also one of the states where the cost of new housing is highest.

The drivers in Victoria continue to be free-standing houses, which have held up reasonably well. Approvals year-ending March reached 32,324, down 9.3% on the previous year. By comparison with other states, Victoria’s approvals of Semi-Detached dwellings – one and two storey townhouses have also fared adequately, though examining the data over two years shows fairly steep falls.

We often comment there is more than one housing market in Australia. In the new dwellings area – the forestry and wood products industry’s bread and butter – that is as true now as it has ever been.

Different sectors: free-standing houses v townhouses v multi-res, for example, have their time. It is similar for the States: Victoria is doing well, but take a moment to look at Western Australia below. Its approvals of Houses were up 0.7% year-ended March, while the rest of the country saw falls. Such is the power of pent-up demand coupled with a relatively isolated economy.

The run in WA and the continued strength in Victoria will not continue forever. The question is which state will deliver the next round of growth? No matter which it is, the need is great, growing and if not met by increased supply, could even become desperate.

Posted Date: May 11, 2024

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