Housing crisis: NSW leads way in race to build more homes, but Australia still falling short

The country continues to fall short on its target to build 1.2 million new homes a year, or 20,000 a month, with Australian Bureau of Statistics data showing 16,579 dwellings were approved in January.

While there are promising signs of rapid growth in apartment approvals, which have reached their highest level since December 2022, experts said the continuing rise in construction costs would likely mean a significant number of approved apartments never make it to completion.

In terms of approvals, New South Wales led the way with a 40 per cent month on month rise driven by 6000 new units as it looks to build mid-rise developments over inner ring infrastructure.

South Australia and Western Australia also recorded gains of 17 per cent and 6 per cent respectively, while Queensland, Victoria and Tasmania all slowed. Queensland’s growth slowdown was a significant 26 per cent.

Dwelling approvals are broadly in line with 10 year average of almost 17,000 approvals per month, but adding Thursday’s figures to last year’s 175,000 approvals, and the country is already 75,000 dwelling behind where it needs to be, according to housing economist Cameron Kusher.

“You really need to be approving 250 to 260,000 dwellings a year. It’s trending higher, but it’s a long way from where it needs to be,” he said.

Completion rates are the biggest concern for Maxwell Shifman, the chief executive of developer Intrapac and former president of the Urban Development Institute of Australia.

Mr Shifman said that while state governments have been pushing mid-rise developments by speeding up the approval process, they have failed to understand the economic reality of building.

“The cost of building higher density housing has exploded since COVID, and is 40 to 50 per cent more expensive.” Mr Shifman said.

“If builders are going to meet the market, they would have to charge less for an apartment than it would cost to build one.”

Building costs continue to be an issue, with CoreLogic finding residential construction costs grew 3.4 per cent over the 12 months to December 2024, the fastest growth in over a year.

Mr Shifman said there had been some good news on the cost front, with the construction slowdown in China helping reduce the cost of imported materials.

He didn’t expect to see much benefit from the United States’ tariff on Mexican gyprock and Canadian lumber to filter through to Australia, and said the cost of structural steel, concrete and labour remained the largest impediments.

Mr Kusher said that unit construction costs were coming down faster, but until they did, the dwellings most likely to be built were free standing houses or townhouses, which would not be built at the same rate as high rises.

Land in high demand

The industry believes that if the country is to meet its target, it will need to open up more areas for greenfield development.

The Urban Development Institute of Australia (UDIA) has called out New South Wales for its poorest approvals performance in 12 years, 42 per cent lower than the peak of over 73,000 approvals in 2016.

“The sharp declines in apartment approvals reinforce UDIA’s ongoing messaging that the combination of weak feasibility and slow planning reform has led to a failure to implement the immediate step change that was desperately needed in infill development to achieve the Accord target of 75,000 new homes a year,” said NSW chief executive Stuart Ayres.

Mr Shifman said there was a similar issue with infill developments in Victoria. He said the Victorian government was “ideologically opposed” to reviewing the State’s policy on green wedges on the city fringes, something that had not been updated in 13 years.

He said that with economics working against medium to higher density construction, the best chance for new homes being built was to look at middle ring sites that were once on the outskirts of urban growth boundaries but were now enveloped in urban sprawl.

“There is only so much capacity that can be unlocked. We’re trying to get an old golf course rezoned, which would accommodate 1600 homes, but it is on the wrong side of the boundary,” Mr Shifman said.

In a bid to pressure governments to improve their approach to housing, the Housing Industry Association of Australia launched a scoreboard ranking States across ten critical housing supply mechanisms, including stamp duty exemptions, fast-tracked land release, and investment in skilled labour.

The report, released in January found South Australia the most progressive in terms of developing supply with a score of nine out of ten, followed by Western Australia with eight out of ten.

NSW, Victoria and Queensland were amongst those with average scores while the ACT was the worst performer.

Housing an economic issue

The sorry state of house building is becoming an issue of national concern, with the Productivity Commission reporting that it now takes twice as long to build a dwelling as it did 30 years ago in terms of labour hours worked.

Speaking at an industry event Wednesday, AustralianSuper chief executive Paul Schroder sounded the alarm bell about its impact on society, noting that the total value of Australian housing at $11 trillion was almost four times that of annual GDP of $3 trillion. By comparison, the US housing stock is only twice as much.

“If you can’t find safe and secure housing, you cannot be optimistic, positive and energetic,” he said. “Everything feels like a drag and I think this is the crisis that’s facing Australia we need to resolve,” Mr Schroder said.

“We have all this money in our domestic houses, and we’re not backing businesses. We are not creating new things, and we are not driving productivity.”