The weaker-than-expected print released Thursday marked the fourth consecutive month of decline in new commencements.
Market consensus expected a 3% lift, while big banks NAB and ANZ pencilled in a 4% rebound.
However, the total dwellings approved slid to 12,520, lower than the 12,850 recorded in the month prior.
The huge fall in total dwellings approved in Queensland, down 28.5%, offset the gains recorded in other states – Tasmania (up 39.3%), NSW (up 23.4%), SA (15.4%), Victoria (up 2.1%), and WA (up 0.9%).
Multi-unit approvals down
Driving the decline was the sharp fall in apartment approvals, which nosedived 24.9% to just 3,771, the lowest in 12 years.
“[The anaemic reading in private sector dwellings excluding houses was] driven by a fall in the number of approved large apartment projects,” ABS head of construction statistics Daniel Rossi said.
Private sector dwellings excluding houses have proven their volatility following a bumpy few months marked by ups and downs.
Most recently, unit approvals bounced back to 19.5% in January, dropped 19% in December, and rose 6.7% in November.
“Higher density housing development is being constrained by labour, material and finance costs and uncertainties, as well as cumbersome planning rules and punitive taxes, especially on foreign investors,” Housing Industry Assocation senior economist Tom Devitt said.
Detached house approvals up
Meanwhile, green shoots emerged in the private sector houses with a 10.7% rebound in February after falling 9.9% in the month prior.
NAB senior economist Taylor Nugent noted the trend in detached houses was expected.
“Falls in detached approvals in January were seen the past two years ahead of a rebound in February,” he said.
Approvals for detached houses rose in all states, led by Western Australia (up 20.7%) followed by New South Wales (up 17%), Victoria (up 12.4%), Queensland (up 3.4%), and South Australia (up 2%).
Combining this month and the previous two months, however, detached house approvals are still in a downturn, as observed by Mr Devitt.
“The last three months of detached house approvals remain down by 3.3% on the same quarter a year earlier, and 37.9% down from the peak three years ago,” he said.
And for Mr Devitt, the bounce back in detached houses from January only “disguises the continuing weaknesses in Australia’s housing market”.
The value of total buildings approved fell 16.5% to $10.88 billion, following an 11.6% rise in January.
Building approvals can’t keep up with demand
The slow pace at which new dwellings are approved continues to weigh on Australia’s housing sector where demand outstrips supply, which in turn brings home prices and rents soaring.
“Australia is not building enough homes,” CBA senior economist Belinda Allen said.
“We are seeing the impact flow through to prices for existing homes and the rental market.”
Median home prices in Australia reached a new record high in March after another 0.6% monthly lift brought it up to $772,730.
National rent prices also went up 2.8% in the March quarter, the fastest since May 2022.
Housing supply and demand remain out of balance in most regions.
“The supply side of the housing equation continues to be insufficient,” CoreLogic research director Tim Lawless said.
In the past 12 months, there have only been 163k new dwellings approved for construction, the lowest since March 2013 and well below the population growth that increased by 619k.
Following said figures, the ratio of the new population per dwelling approval is now 3.8, near the highest level in history and well above the long-run average of 1.5.
“That subdued annual run rate of dwelling approvals stands in sharp contrast with the very strong population growth seen over the past few years,” NAB head of market economics Tapas Strickland said.
“This ramp-up in population growth has put pressure on both rents and dwelling prices, which are challenging the return of inflation to target.
“More recent net arrivals data suggests population growth should ease a little, though there remains an evident shortage of housing and population growth is still strong.”
Will the government reach its goal of building 1.2m homes by 2029?
At the rate approvals for new dwellings are going, it might take a bit longer to get there.
“As we approach the July 1st starting point for the federal government’s 1.2 million new well-located homes target, dwelling approvals are yet to show any meaningful uplift,” Mr Lawless said.
The 12,520 homes approved for construction in February are well below the 20,000 average monthly run rate of approvals required to see 1.2 million homes in five years.
Yearly, 240,000 homes must be approved to reach the target; the annual run rate pre-pandemic was 177,000.
But the goal, albeit ambitious, is not impossible.
“It is possible to build the Australian Government’s target of 1.2 million homes over the next five years, but it would require significant policy reforms which include lowering taxes on home building, easing pressures on construction costs, and decreasing land costs,” Mr Devitt said.
Photo by Randy Fath on Unsplash
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