Albanese Housing Target Faces Approval Slump
As the Albanese government prepares to launch its ambitious plan to build 1.2 million new homes, recent data on housing approvals has cast doubt on the feasibility of this target. The latest figures from the Australian Bureau of Statistics (ABS) indicate a continued slump in building approvals, raising concerns about the government’s capacity to meet its objectives.
April Housing Approvals Disappoint
In April, the total number of dwelling approvals dropped by 0.3 percent, with only 13,078 new homes given the green light for construction. This figure fell significantly short of the anticipated 1.8 percent increase, according to consensus forecasts. The decline was largely driven by a 1.6 percent reduction in permits for detached houses and a 1.1 percent drop in approvals for units and apartments.
Month-to-month housing permits data can be volatile and are often subject to revisions. However, the broader trend indicates a sharp decline in approvals, plunging 43 percent from a peak of 23,126 in March 2021. Over the year to April, just 163,493 new dwelling permits were issued—a level that has remained relatively constant since December, despite rising home construction costs and elevated interest rates that have dampened construction activity.
Supply vs. Demand: A Growing Imbalance
The annual tally of housing approvals starkly contrasts with Australia’s population growth over the same period, which surged by 626,871 due to high net migration levels. This imbalance between housing supply and demand has exacerbated concerns about affordability and availability in the real estate market.
The Albanese government’s target, set to commence on July 1, aims to construct 1.2 million well-located homes over five years, necessitating an average of 240,000 new homes per year. Given the current trends, meeting this goal appears increasingly challenging. AMP Deputy Chief Economist Diana Mousina described the current approval levels as “very low” amid strong housing demand, warning that the chronic housing supply issue will persist, driving up home prices and rents.
Economic Pressures and Sector Challenges
The housing sector’s performance is being closely monitored by economists as an indicator of the impact of the Reserve Bank of Australia’s (RBA) recent series of interest rate hikes—13 in total—intended to curb inflation. These rate increases have slowed economic growth and contributed to higher borrowing costs, which, coupled with surging construction costs, have pressured the housing market.
NAB Senior Economist Taylor Nugent noted that while cost growth in the construction sector has moderated somewhat and there has been some easing of capacity pressures in certain areas, broader challenges remain. Elevated costs make it difficult for valuations to align with some new projects, reducing demand for off-the-plan purchases. Additionally, competition for resources with non-residential building and engineering work continues to pose hurdles for residential construction.
Government Response and Future Outlook
Given the disappointing approval numbers, the Albanese government may need to reassess its strategies to stimulate the housing market. Potential measures could include incentives for builders, subsidies to offset high construction costs, or reforms to streamline the approval process. Without significant intervention, the likelihood of achieving the 1.2 million homes target remains uncertain.
Economists and industry experts will continue to scrutinise developments in the housing sector, particularly as the new financial year approaches. The government’s ability to navigate these challenges and implement effective policies will be crucial in addressing the critical shortage of housing and ensuring that the ambitious goals set forth are met.
As the countdown to July 1 begins, all eyes will be on the Albanese government’s next moves and whether they can successfully overcome the current obstacles to deliver the much-needed housing supply for Australians.
