Home building approvals look to have strengthened in the past year after a very weak period in the years after the pandemic.
In November, the number of new homes approved to start construction jumped 15% compared to October, driven by a 34% increase in higher-density approvals; in the past year the jump is even sharper, up 20%, with higher density up 55%.
November was especially strong though, and building approvals, particularly higher density, can be very volatile because apartment projects are lumpy – a big project being approved in a particular month has a big effect on that particular month.
Even so, looking through that month-to-month volatility, higher density building approvals are clearly trending in the right direction.
The chart below shows the ‘trend’ measure – which smooths through that month-to-month volatility.
On this measure the jump is far less pronounced, but still quite strong: higher density building approvals are up 17% in trend terms in the past year.
While this is all good news, we are still well behind the pace of building we need to hit the National Cabinet target of 1.2 million homes over five years.
The current pace of approvals of about 16,000 a month is about 20% below what we’d need to hit the target.
No state is hitting the pace it would need to be hitting to reach its share of the 1.2 million homes over five-year target, though some are further behind than others.
NSW, in particular, is well behind its share of the target – only building around two-thirds as many homes as it needs.
The big difference for NSW is high density: the state is building far less high density today than it was a decade ago.
However, approvals are headed in the right direction: in the past couple years, the number of higher-density approvals has jumped close to 50%.
But the fact we’re headed in the right direction is encouraging, and many of the challenges the residential construction sector has been facing are abating.
Build times are starting to come down, construction costs are no longer escalating at the rapid pace we were seeing during 2022 and 2023, and labour constraints may be starting to ease.
Hopefully, that will see us continue to make progress towards building more homes.
