Confidence appears to be growing in Australia’s property market, with positive indicators emerging ahead of the Reserve Bank of Australia’s (RBA) upcoming meeting.
On Wednesday, the Australian Bureau of Statistics (ABS) revealed that building approvals – or the number of residential and non-residential building projects that have received government approval to begin construction – have increased in May.
Total dwelling approvals edged up 3.2%, in seasonally adjusted terms, during the month to 15,212 – that's a 6.5% jump, year-over-year, and a clear break from the downward trend seen in recent months.
"It's good news that building approvals were up," Saul Eslake, a Hobart-based economist, told Australian Broker. "But the data is still short of the levels that would be needed to solve the housing affordability problem. And there are increasing delays between when buildings are approved by councils and when they actually get finished, so that people can move into them."
While annual growth eased slightly from April’s 7.6% year-on-year rise, May maintained momentum, largely driven by activity in the private sector. Approvals for houses in the private sector climbed 0.5% to 15,212, while private sector dwellings, excluding houses, advanced 11.3% (following a 19% decline in April) to 5,571.
By state, the biggest changes came in Victoria, followed by New South Wales, where seasonally adjusted dwellings approvals rose by 14% and 11%, respectively, in May.
"The rebound was evident in both the volatile multi-units component and more stable detached housing, suggesting the downtrend may have stabilized," Lucinda Jerogin, associate economist at Commonwealth Bank (CBA) wrote in a note.
For a market plagued with a chronic housing shortfall, the uptick in approvals is a welcome sign.
But Eslake pointed out that the data is "notoriously volatile" from month to month.
"[The data] moves around an awful lot," he said. "And that reflects the fact that what it's actually measuring is how quickly these things are processed by bureaucrats of local governments. It's not necessarily how often someone goes to a builder and signs a contract; it's actually how quickly these things get passed through councils. And that's one of the problems.
"There's a whole lot of bottlenecks in the housing [and] in the dwelling construction pipeline, which include getting things approved by councils," Eslake said. "But there's also shortages of labor and materials and all that sort of stuff."
In recent months, falling approval numbers meant many projects weren’t even making it past the planning stage – let alone breaking ground. And without new builds, the supply crunch only deepens.
The May rise in approvals points to a possible pickup in construction activity, in addition to growing confidence in the broader economy – just as the RBA prepares to deliver its next interest rate decision. The nation's central bank meets next Monday and Tuesday, July 7 and 8.
The RBA’s May rate reduction, the second for 2025, along with the potential for further easing, boosted borrowing power, lifted consumer confidence and fueled the market’s upward momentum. Meanwhile, inflationary pressures hit a three-year low during the March 2025 quarter, which is well within the central bank's target inflation range.
But the recent uplift comes amid conflicting market forces, including a persistent housing crunch, costly construction materials and not enough labor to complete projects – and Australia’s property market is feeling the squeeze, driving rents and property prices higher. Some would-be buyers, especially in capital cities, are being forced out of the market. Adding to the uncertainty is continued tariff talk, recessionary fears and unrest in the Middle East.
Prime Minister Anthony Albanese – who was re-elected to the Labor Party in May – laid out ambitious housing plans in 2023. As part of his re-election campaign, he pledged to complete them, including building 1.2 million new homes across the nation by 2029 by way of the National Housing Accord.
Other initiatives developed by the Albanese camp, such as the $10 Billion Housing Fund and the Social Accelerator, also promised to create new homes. Still, even with the latest rise in approvals, it may not be enough to deliver on this ambitious plan or close the gap in housing supply.
"There remains a large pipeline of construction work to be done in Australia," said Jerogin, adding that the major bank expects building approvals to rise throughout the rest of 2025.
"An easing in price pressures, further interest rate relief and more capacity in the sector should support activity," she said. "Additional policy support from the Federal and state governments should also support building activity."
