Australia's housing pipeline continues to weaken, adding to concerns about the nation's chronic housing shortage.
Total dwelling approvals fell 3.4% to 16,710 in April, in seasonally-adjusted terms, the Australian Bureau of Statistics (ABS) revealed on Tuesday. That's on top of 10.5% drop in March.
The weakness was broad-based. Approvals for private sector houses slipped 1% to 10,088, while private sector dwellings, excluding houses — such as apartments and units— was down 3.6% in the month to 6,403.
Economists have long cautioned that apartment and unit approvals are a highly volatile measure, often skewed by the timing of a single large apartment development in any given month.
Even so, the latest figures underscore the scale of Australia's housing challenge. Building approvals are just the first step in the construction process, and not every approved dwelling ultimately gets built. As a result, the most recent approval numbers are merely an estimate to the number of new homes that will eventually be delivered.
"We expect the housing market to weaken further from here," said Madeline Dunk, an economist at ANZ. "Building approvals have fallen 13.6% over the past two months, driven by a 28.3% decline in private units and townhouses.
"Building products have been impacted by the effective closure of the Strait of Hormuz, with prices of materials such as PVC pipes rising sharply," the economist added. "This is likely to add to feasibility challenges for some builders who are already dealing with elevated interest rates and labour availability concerns. We expect this will weigh on approvals over the near-term."
Lucinda Jerogin, associate economist at Commonwealth Bank of Australia (CBA), echoed the sentiment in a note Tuesday.
"Headwinds to the construction sector are building in the face of higher interest rates and higher costs due to supply chain disruptions from the Middle East conflict," Jerogin wrote. "New dwelling cost growth again accelerated in April. We expect further pressure as higher material costs from the conflict in Iran flow through."
A reopening of the Strait of Hormuz — one of the world’s most important oil shipping routes, which effectively closed in March after conflict erupted in the Middle East — would likely ease global supply pressures and push fuel prices lower. That, in turn, could take some heat out of inflation in Australia and strengthen the case for interest rate cuts over time, reducing borrowing costs and potentially lifting market activity.
"The Strait opening would help to ease some of that pressure," Dunk told Australian Broker. "But it would also take time. It's not just a tap that turns on. We're talking like a long process, around six months to a year."
While global energy markets and interest rate expectations are being shaped by geopolitical risks abroad, Australia’s domestic housing pipeline is playing out very differently across the country.
By state, approvals for total dwellings were mixed. New South Wales, Western Australia and Victoria registered losses, at -9.5%, -7.4% and -3.9%, respectively. Meanwhile, approvals surged 42.2% in Tasmania. South Australia and Queensland also had gains in approvals, at 4.3% and 0.3%, respectively.
Private sector house approvals were similarly uneven across the country. Approvals fell -13.8% in New South Wales, and were down -1.2% in Western Australia. Meanwhile, approvals rose 11.4% in South Australia, 2.2% in Victoria and 0.9% in Queensland.
The latest decline in approvals comes as Australia continues to grapple with a chronic housing shortage. In 2023, Prime Minister Anthony Albanese pledged to deliver 1.2 million new homes by 2029 under the National Housing Accord. But with fewer projects entering the construction pipeline, that target is looking increasingly difficult to achieve.
In the year to April, 200,424 dwellings were approved in Australia, falling short of the Housing Accord's target of 240,000 per year.
The Labor Party has responded with a flurry of housing reforms designed to boost access for owner-occupiers. Recent measures have sought to curb investor activity — including new restrictions on negative gearing and changes to tax breaks for holiday homes — in an effort to free up more housing stock for owner-occupiers. At the same time, the government has expanded support for first-time homebuyers through a range of schemes meant to help aspiring homeowners overcome affordability barriers.
