Is the worst of the crisis over for the building industry?

The tide might be turning for the troubled building industry, with the best approvals figures in six months being released, and one state in particular described as 'off and racing'.

By Craig Francis

| 3-7-2024 | Building And Construction | 4 min read

Despite some positive news, ambitious building targets to overcome the housing crisis are still looking unlikely to be met. (Image source: Shutterstock.com)

The strongest building approvals result in six months has offered hope that the beleaguered building industry may be moving past the worst of the crisis that has engulfed the industry.

While cost and labour issues do remain, dwelling approvals have gained every month since bottoming out in January.

The Australian Bureau of Statistics on Wednesday (3 July) released its monthly building approvals data for May 2024 for detached houses and multi-units covering all states and territories and there were some much needed rays of light shining from the end of the tunnel.

Building approvals for new homes increased by 5.5 per cent to 14,175 in May. Private house approvals lifted 2.1 per cent to 9,163, with the biggest gains in Western Australia (+9.4 per cent) and New South Wales (+5.9 per cent). Private attached dwellings had a good month, up 16.3 per cent to 4,858, with key support coming from Victoria and Western Australia.

Maree Kilroy, Senior Economist for Oxford Economics Australia, said Western Australia in particular is “off and racing”.

“Demand fundamentals there are robust, including annual population growth near 3.5 per cent for Perth, while dwelling supply is also coming off a low base.

“This mismatch has triggered a surge in existing home prices that is positively filtering through to new dwelling demand.”

The new level of building activity will be unlikely to help the government reach its ambitious target of 1.2 million new homes in five years needed to address the housing crisis.

Housing Industry Association Chief Economist, Tim Reardon, said the 163,760 total dwelling approvals over the most recent 12 months to May 2024 was still well below the 240,000 new homes needed each year from 1 July 2024 to achieve National Cabinet’s goal.

“The low approvals numbers indicate a slow start to building 1.2 million homes over the next five years.

“Increasing the number of homes built will be necessary to address longstanding housing shortages.

“Addressing tax, planning, land and regulatory constraints will be essential to increasing the supply of homes in Australia,” Mr Reardon said.

The approvals uptick was also not being felt evenly around the country.

In seasonally adjusted terms, approvals in the three months to May 2024 saw an increase of 51.1 per cent in Western Australia compared to the same time in the previous year. This was followed by Victoria (+10.0 per cent). The other jurisdictions recorded declines over the same period, led by the New South Wales (-21.6 per cent), followed by South Australia (-6.0 per cent) and Queensland (-4.8 per cent).

Approvals volatility, languishing dwelling type

Taking monthly approval numbers at face value might look promising but the volatility had to be taken into account.

Despite a monthly uptick in multi-unit approvals in May, aggregate multi-unit approvals are 32 per cent lower than the same time 12 months ago.

Speaking to API Magazine, Sarah Macaulay, UDIA WA Executive Director– Strategy and Policy, said even though WA’s strong monthly figures might be encouraging, it was still early days.

“While the monthly statistics are volatile, we have seen a three month trend emerge, with ABS dwelling approvals up 33 per cent in the last quarter,” Ms Macaulay said.

“This figure might give some tentative hope, however, we remain far below what is needed to address the housing shortfall in WA.

“It is also important to note that this improvement in activity is coming off a low base, with approvals in the last financial year the lowest recorded in 23 years.

“Modelled forecasts indicate WA will record approximately 17,100 dwelling approvals in FY2024, which is a growth of 21 per cent compared with the low base of the previous year, but was still 22 per cent lower than the long run average (FY2001-23).”

The housing supply shortage in WA is being felt across the board with house, semi-detached and apartment approvals all down on the long run average. UDIA WA is forecasting a 30,000 housing shortfall over the next five years.

Ms Kilroy highlighted a specific dwelling type seen as fundamental to increasing the supply of new housing that is an area of concern.

“We have passed the worst for house approvals but there are still question marks to whether apartments have troughed.

“Momentum is set to gain in 2025 with the likely pass through of interest rate cuts and policy support at both the federal and state government levels.

“With the shift into FY2025, new dwelling supply is now counting towards the National Housing Accord 1.2 million dwelling target.

“Allowing for a normal level of drop out to project completion, approvals need to average around 20,800 per month.

“Despite some recent improvement, we are obviously still tracking well below target.”

Retail sales shun higher interest rates

In other data released by the ABS on Wednesday, retail trade lifted 0.6 per cent in May.

The figures are unlikely to weigh heavily on inflation and subsequent interest rate decisions, being largely driven by bargain sales.

Robert Ewing, Head of Business Statistics at the ABS, warned underlying trends were still “stagnant”.

“Retail turnover was boosted this month by watchful shoppers taking advantage of early end-of-financial year promotions and sales events,” he said.

“Retail businesses continue to rely on discounting and sales events to stimulate discretionary spending following restrained spending in recent months.

“Despite the seasonally adjusted rise, underlying spending remains stagnant with retail turnover flat in trend terms.”

Clothing, footwear, and personal accessory retail showed the largest increase, with a 1.6 per cent rise after two consecutive falls in April and March. Household goods retailing lifted 1.1 per cent while department stores fell 0.9 per cent.

On Tuesday, the Federal Government also announced that 50,000 new places are now available for the 2024-25 financial year across three scheme guarantees including: