Building approvals muted and to stay subdued all year

Approvals for new home building were unchanged last month as higher interest rates and high labour and material costs continue to take a toll.

Detached house approvals sank 1.6 per cent in April while multi-unit homes fell 1.1 per cent, with public dwellings posting an improvement, the Australian Bureau of Statistics said on Thursday.

Overall dwellings fell a modest 0.3 per cent, after a 2.7 per cent rise in March.

New home starts have been sluggish in the face of higher borrowing costs and elevated costs of building materials and labour.

More homes are needed, however, with a federal government target of 1.2 million new-builds over five years starting from mid-2024.

Around 240,000 homes will need to be built each year to meet the goal but annual approvals are presently sitting at around 163,500.

Oxford Economics Australia senior economist Maree Kilroy said the approvals activity was unlikely to dive further but bubble along at below-trend levels for the rest of the year as interest rates held stable.

“Momentum is set to gain in 2025 with the pass through of interest rate cuts and policy support at both the federal and state government levels,” she wrote in a note.

In a speech earlier in May, Reserve Bank chief economist and an assistant governor, Sarah Hunter, said new housing supply was taking time to come online, with “many projects still not viable”.

Total dwelling approvals were mixed across the states and fell the most in Tasmania, down 16.1 per cent, followed by NSW, which recorded a 4.5 per cent decline.

South Australia approvals rose 13.9 per cent and Queensland posted a five per cent gain.

Housing Industry Association senior economist Tom Devitt said Australia posted its weakest volume of new home commencements in over a decade in the 2023/24 financial year.

“At the same time, Australia is seeing record population growth and acute shortages of housing that are expected to persist for at least the next few years,” Mr Devitt said.

He said addressing tax, planning, land and regulatory constraints on the housing industry was the “only hope” of reaching state and national housing targets and easing the housing crisis.