Approvals Rise Despite Skyrocketing Construction Costs


The average value of approved homes is up 22 per cent nationally for February, driven by skyrocketing construction and labour costs

Housing approvals for February increased by 43.5 per cent after a record fall of 27.1 per cent in January, according to ABS data. 

ABS construction statistics director Daniel Rossi said increases were recorded across all types of housing, with the apartment sector recording the highest growth.

“The rise in February was driven by a large increase in apartment approvals in New South Wales and Victoria,” Rossi said.

Total apartment approvals increased by 78.3 per cent—Victoria’s total housing approvals increased by 91 per cent while NSW rose by 48.8 per cent. 

South Australia’s total approvals increased by 35.9 per cent, Tasmania’s by 12.2 per cent and Western Australia by 8 per cent.

Queensland registered a decline of 14.6 per cent on January and by 34.5 per cent over the year. 

CBA’s Stephen Wu said Queensland’s figures were at odds with strong net interstate migration.

“[This] helps to explain rising prices for existing homes and low vacancy rates,” Wu said. 

National housing approval by state: February 2022

Private sector houses (number)Private sector houses (monthly % change)Total homes approvals (number)Total homes approvals (monthly % change)
New South Wales265327.2554348.8
South Australia7537.6112735.9
Western Australia118911.512308
Northern TerritoryN/AN/AN/AN/A
Australian Capital TerritoryN/AN/AN/AN/A

 ^  Source: ABS

Wu also said that there was unlikely to be a massive increase in housing demand as a result.

“It is unlikely these numbers reflect a sudden spike in housing demand but rather a normalisation after an Omicron-induced fall last month,” Wu said.

“During January, significant labour supply issues impacted on capacity to process approvals, this likely contributed to a much bigger drop, and then now recovery than actual demand warranted.

“Private detached housing approvals numbers increased by 16.5 per cent nationally.”

Wu said that compared to mid-2021 highs due to the HomeBuilder grants, the national level of housing approval was declining. 

“This is one measure amongst many that indicate a cooling of the housing market,” Wu said.

“CBA forecasts house prices nationally to be flat in 2022 and down 8 per cent in 2023.”

National housing approvals by sector: February 2022

February 2022 (numbers)Monthly change (%)Yearly change (%)
Total homes approved18,67543.5-7.8
Private sector houses10,24016.5-27.4
Private sector homes excluding houses718378.325.5

Non‑residential building approval value rose by 132 per cent but Wu said the month-to-month measure was volatile.  

“The big jump was driven by approval of 14 public developments valued at $30 million,” Wu said.

“This is an example of how the measure can be volatile due to significant individual projects.”

Alongside the approval increases was the increase in the average cost of housing.

The average approval value for a house in February 2022 was $388,300, up $70,000 from $318,600 in February 2021, according to BIS Oxford Economics principal economist Timothy Hibbert, who said that it reflected the ongoing issues in the construction sector.

“Surging construction costs continue to show through, with the average cost of approved houses now up a huge 22 per cent nationally over the year to February 2022,” Hibbert said.

In January, Omicron was touted as a reason for low numbers of approvals with planning staff undergoing restrictions or isolation and the issues of labour shortages and supply in construction.

But February and March saw ongoing supply shortages and other concerns with extreme events both at home and overseas, seeing costs across all sectors increase. 

“With floods and the conflict in Europe adding to the list of supply issues over Q1-2022, cost pressures continue to mount,” Hibbert said.

Rider Levett Bucknall’s first quarter 2022 tender pricing index outlined several factors that make it hard to predict what the year ahead will be like for the sector. 

“The first quarter of 2022 has seen an increase in ‘known unknowns’,” RLB managing director Stephen Mee said.

It highlighted fragmented supply chain issues, Australia’s slow border reopening, current state and federal elections, the economic cost of the floods with potential more rain predicted as factors affecting the industry. 

“The demand for contractors, labour, plant and materials continues despite recent lockdowns, supply chain influences and the slowdown of economy due to Covid-19,” Mee said.

“When the true scale of recent devastating floods in both New South Wales and Queensland is known, pressure will be seen in the need for additional materials, plant and labour for the rebuilding efforts within these communities.”

The report also said the war in Ukraine was a key factor.

“The conflict ...  is generating flow on effects such as higher fuel prices, potential timber shortages due to unstable imports from Baltic nations, and a generally very unsettled geopolitical landscape,” it said.

Hibbert said increased delays in the construction sector were expected for the remainder of 2022.

“We expect further trend growth in dwelling approvals, but at a much more modest rate in the following months. 

“Very low interest rates, strong greenfield land sales over 2021, and elevated pressure on the housing stock will continue to support dwelling construction at an elevated level deeper in 2022.”

RLB predicted that an increase in interest rates by the Reserve Bank might dampen the housing market. 

“Looking ahead, all RLB offices are predicting market pricing volatility due to the factors identified above,” the RLB report said.

While Melbourne’s inner-city high-rise residential activity was subdued, medium-density apartment activity was stronger with a predicted continued increase in build-to-rent market activity.

In Sydney, however, demand for inner-city apartments remained subdued while many are taking advantage of increased prices to sell and then buy apartments in prestige suburbs where there is an increased demand. 

Mee said the Sydney building costs had increased at a rate faster than inflation.

“This is a trend which looks set to continue due to construction demand outstripping supply for both labour and materials.” 


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