As higher density home building approvals rise, Master Builders Australia has cautioned against government-induced cost pressures, which could affect sustained recovery in this segment.
The May 2023 building approvals and lending data shows a welcome uplift in higher density home building approvals, which rose by 59.4 percent in May, recording their strongest monthly total since the end of last year.
“However, detached house building approvals remained flat during the month and are about 15 per cent down on a year ago,” Master Builders Australia chief economist Shane Garrett noted.
“May’s sharp increase in unit/apartment building approvals is welcome given the severity of shortages in the rental market.”
Garrett attributed the difficult conditions in the home rental market to prolonged underbuilding in the medium/high-density segment of the market, a trend that started before the pandemic. He also observed that the 12 interest rate increases have made it much more expensive to build new homes, while higher mortgage rates have also forced up the cost of providing homes to the rental market.
“Lending figures provide a good indication of what’s likely to develop on the ground over the coming months,” he says.
Though the number of loans for the construction of a new home eased slightly during May (-0.2 per cent), there was a 5.1 per cent uplift in the number of loans for the purchase of newly built dwellings. “However, loans are still over 40 per cent lower than a year ago,” Garrett says.
While Master Builders Australia chief executive Denita Wawn welcomes the bounce in higher density building approvals during May, she still expects tough times ahead based on new home lending data.
“We will need to see a sustained recovery in higher density home building volumes before the affordability crisis in our rental market starts to abate,” Wawn says.
“Combined with the larger than expected slowdown in inflation last week, today’s figures should give the RBA decent grounds for holding rates tomorrow.
“Increasing the construction of necessary new homes will contribute to alleviating inflationary pressures throughout the economy.
“While the fight against inflation appears to be favourably shifting, it is crucial not to jeopardise progress by imposing unnecessary cost pressures through government regulation.
“By pumping up costs right across the economy, proposed changes to industrial relations would be very counterproductive in terms of beating inflation and unduly add costs to construction,” she added.
Image: Master Builders Australia
