Approvals for private sector dwellings excluding houses (apartments, townhouses, terraced or semi detached houses) declined 25.3% in December, per the ABS.
Since January 2023, there have been 59,174 new such projects approved, about 15% less than the equivalent period in 2020, at the height of the pandemic.
This drove an overall 9.5% decline in dwelling approvals, with a more moderate 0.5% drop in approvals for private sector houses.
Tom Devitt, Senior Economist at the Housing Industry Australia (HIA), said while "no one wants to see" low numbers like this, it is a predictable consequence of several policy mistakes, chief among which being interest rate rises.
"[Hikes] from the Reserve Bank have piled on material constraints the industry has already been feeling," he told Savings.com.au.
He said the HIA are even seeing a number of previously approved projects fall by the wayside as costs spiral.
"Banks are withdrawing finance [because of] building costs and borrowing power shrinking."
Yesterday's CPI inflation numbers showed a 1.5% quarterly increase to construction costs in December, despite headline inflation moderating.
CommBank economists Stephen Wu and Harry Ottley say even if the RBA cuts rates later on this year, there is likely to still be a lag before this feeds through to more apartment blocks.
"The more significant planning process involved in larger projects means that multi‑unit dwelling activity takes longer to respond to stimulatory policy such as the monetary easing we expect later this year," the pair wrote after the data was released.
The HIA is predicting fewer than 100,000 new construction projects will begin in Australia this year, the lowest in a decade.
In September last year, the National Housing Finance and Investment Corporation (NHFIC - now called Housing Australia) predicted Australia will be short 175,000 homes by 2027, with 59% of the shortfall in the unit market.
CoreLogic economist Kaitlyn Ezzy says it's possible the Housing Australia estimate might need to be revised up.
"It is fair to say with ongoing subdued levels of approvals, high population growth and lower average household sizes, there could be a blowout in the shortfall of dwellings, especially if the downturn in approval lingers into 2024," she told Savings.com.au.
"An offsetting factor could be how well the construction industry works through the elevated number of dwellings in the pipeline, where there are currently 230,000 dwellings under construction awaiting completion.
"That’s much higher than usual, and more completions may come to fruition if capacity in the construction sector eases this year."
Zoning and stamp duty reform on the agenda
Mr Devitt said while interest rate rises were the "loudest" factor in dwindling residential construction, there were several other policy changes that could help boost new homes being built.
The HIA has long called for tax reform to decrease the cost of building a new home, and called for stamp duty to be abolished in favour of more equitable, affordable taxes.
Mr Devitt said restrictions on planning are also hurting unit approvals in particular.
"State governments need to allow more medium to high density housing in existing suburbs," he said.
"[Developers face] obstacles like height and density limits, and heritage constraints."
Ms Ezzy also had several suggestions for how the Government could address these supply issues.
"Supply-side considerations could be tailoring migration policy to address the shortage in construction workers, such as the recent migrant settlement grant incentive in WA, postponing infrastructure projects to free up resources for residential construction, and government sponsorship of delayed or abandoned residential construction projects," she said.
Picture by Maria via Adobe Stock
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