Economists have warned that a slump in building approvals is poised to push property prices and rents even higher, with the building pipeline in affluent parts of Sydney and Melbourne mired at extremely low levels.
In the 12 months to April, about 174,000 new dwellings were approved for construction by the private sector across the country, equivalent to a 1.6 per cent expansion in Australia’s stock of 10.9 million homes.
But the size of the housing pipeline varies dramatically across the country and within the nation’s capital cities, with wealthy inner-city areas approving very few dwellings while outer-suburban growth corridors continue to expand rapidly.
Just 88 new homes were approved across the suburbs of Leichhardt, Marrickville, Sydenham and Petersham in Sydney’s inner-west in the 12 months to April, according to an analysis by The Australian Financial Review. The figure equates to just 0.2 per cent of the region’s existing dwelling stock and well short of Australia’s 2 per cent population growth rate.
Only 142 dwellings were approved in Sydney Inner City in the 12 months to April, or just 0.1 per cent of the region’s dwelling stock. There were only 96 approvals in Manly and 155 across North Sydney and Mosman.
While approval numbers can be lumpy, about two-thirds of regions across the country recorded fewer approvals in the past 12 months than the prior 12 months, including many parts of Melbourne and Sydney.
Approvals have fallen sharply since early 2021 as soaring material costs and high-interest rates crunch demand for new homes, forcing a wave of insolvencies across the construction sector.
Overall, approvals made up less than 1 per cent of the housing stock across Sydney’s eastern suburbs, inner-west, lower north shore and Northern Beaches.
In Melbourne, approvals were low across the inner city and the outer-east.
In Darebin – South, which includes suburbs such as Northcote and Thornbury, only 175 dwellings were approved over the past 12 months. About 350 dwellings were approved in the neighbouring region of Yarra, which includes popular suburbs such as Richmond and Collingwood.
Former senior RBA official Tony Richards said some local government areas had persistently low levels of approvals and construction even though they were close to the CBD and were desirable places to live.
“Now each of those LGAs can point to some areas within the LGA where there has been some building of medium- or high-density housing in recent decades,” Dr Richards said.
“But when you look at zoning maps, many of them still have huge swathes of land which has zoning that only allows low-density housing. So, by definition, there is essentially no scope for building additional housing units on most of the land in those LGAs.”
Dr Richards said if fewer houses were being built than needed, house prices and rents would increase by more than they otherwise would have.
“Of course, it’s not just about building more market-sector housing … But whether it’s housing for owner-occupiers, build-to-let apartments, or social and community housing, they all need appropriately zoned land and building approvals from LGAs to go ahead.”
The data also reveal how reliant Australian cities have become on housing the growing population by expanding outwards, with the fastest-growing parts of the country found on the outskirts of capital cities,
The regions of Rouse Hill – McGraths Hill and Blacktown – North in Sydney’s north-west growth corridor were among the fastest growing regions in the entire country, approving 5685 new homes between them in the 12 months to April.
Melton – Bacchus Marsh in Melbourne’s outer-west approved 5501 homes, or 7.5 per cent of its existing dwelling stock. Other fast-growing were the Woden Valley in Canberra’s south, Jimboomba in outer Brisbane, and Bringelly – Green Valley in Sydney’s south-west.
Despite the decline in building approvals over the past couple of years, Jarden chief economist Carlos Cacho said the building blocks for the next housing construction boom were coming together.
This includes a surge in net overseas migration, increasing pressure on state and federal governments to unlock housing supply, and changes to facilitate more build to rent development.
“While these conditions are necessary and supportive of a housing recovery, we believe they are not sufficient with an improvement in affordability needed, likely to be driven by a combination of lower interest rates and construction costs.
“As such, we still expect the next 12 to 18 months to be challenging for the housing and construction sector before late-24 rate cuts kickstart a construction boom which could rival the 2015 to 2018 cycle.”
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