Why the obsession with housing approvals could push prices even higher

A leading property researcher has questioned the state and federal government approach of speeding up building approvals to boost housing supply, warning that the construction industry simply cannot keep pace.

While data shows home approvals are starting to gather pace from a low base, Eliza Owen from Cotality (formerly known as CoreLogic) worries a construction bottleneck could drive up costs and flood the market with poor-quality homes.

She said the current focus on accelerating building approvals could cause more problems than it would solve without more construction sector capacity.

“With completion times already above average and construction costs elevated, it seems an odd time to be incentivising more dwelling approvals and commencements.

“There’s a lot in the pipeline. The building industry is stretched thin.”

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Ms Owen pointed out that the average time between commencing construction on a unit block and completing it had blown out from around six quarters (about 18 months) a decade ago to more than nine quarters (about 22 months).

It is a similar story for townhouses and detached homes, where construction times have increased from around 10 and seven months respectively to 13 and more than 10 months.

Too few tradies to keep up

Ms Owen’s observations come as Housing Minister Clare O’Neil hosts meetings with industry groups to thrash out how to achieve the federal government’s target of 1.2 million new homes by mid-2029.

Housing Industry Association chief executive Simon Croft, who was at Ms O’Neil’s roundtable meeting on Tuesday, said it was “really important to have a target — an ambitious target” but “the numbers are saying [1.2 million homes in five years] will be a very significant ask”.

Last month, accidentally leaked advice published by ABC News showed Treasury had been warning the government its signature housing policy target would “not be met”.

Mr Crost said Australia needed many more skilled tradespeople — including carpenters, electricians and plumbers — if it was to have any realistic hope of meeting the 1.2 million new homes goal.

The Albanese government’s plan includes buildings funded by the private sector — developers, investors and owner-occupiers — plus a smaller number of government-funded homes.

Cotality’s analysis showed the closest Australia has come to a similar rate of building was at the end of 2019, when 1.04 million homes were built in five years.

However, Ms Owen pointed out that interest rates were much lower over that period and investor activity was higher, especially among overseas buyers.

“It’s too hard to build a home in Australia,” Ms O’Neil said in a statement.

Industry focus on supply issues

Ms Owen analysed national data about properties being built and applications for new homes.

She found completion rates were hovering around 890,000 over five years, well below the mid-2029 target of 1.2 million.

Ms Owen says the number of people looking to build would rise further if the Reserve Bank of Australia dropped interest rates, as expected this month.

However, she noted the building industry would be hard-pressed to respond to extra work.

Mr Croft said the round table with the housing minister was focused on the skills shortfall, as well as ways to respond to demand, including changing construction codes and other regulations, and “modern methods” to build faster, such as pre-fabrication and 3D printing.

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Master Builders Australia’s (MBA) chief executive Denita Wawn, who missed the minister’s round table but was briefed by a representative, noted the emphasis on supply and said the MBA was also focused on easing infrastructure issues that could hold up housing developments, like a lack of sewerage or roads.

“You’ve got horrific stories of effectively stranded suburbs,” she said.

More focus needed on demand: Owen

Ms Owen doubted supply issues could be fixed in time to meet the mid-2029 target.

“It’s clear that under-construction is where you have the biggest hold-up,” she argued.

“Approvals will start to rise when interest rates come down.

Mr Croft disagreed, saying inflation in the building sector had eased since the pandemic, when materials such as timber soared in cost.

Ms Owen was also concerned that pushing for 1.2 million homes could lead to poorer-quality builds, which she said was a problem during the last development boom up to 2019, with many apartments in particular plagued by serious defects, from flammable cladding to leaks and even structural flaws.

“More dwelling completions are not necessarily a mark of success for Australia’s housing market,” she argued.

Instead, Ms Owen called for more focus on easing demand, including dropping tax concessions for property investors.

This week, the union movement reignited the debate around negative gearing, with ACTU secretary Sally McManus calling for a one-property limit.

“The supply side is fraught,” Ms Owen says.

Ms Owen believes discussion around reducing demand is increasing after “politically a lot of hesitancy” but that there needs to be more focus on this side of the equation.

“I think it’s fair to say that wealthy lobby groups like developers have an interest in making the supply side more feasible,” she added.

Ms Wawn slammed calls to reduce housing demand and described the ACTU’s latest push over negative gearing as “disappointing”.

“It’s a totally wrong call about resolving the housing crisis,” she said.

A federal government spokesperson said the Commonwealth was “realistic about the factors beyond [its] control” when it came to the 1.2 million housing target, such as the current level of interest rates.

“The homes target is not just ambitious — it’s essential,” the spokesperson said.

“This crisis wasn’t created overnight, and it won’t be fixed overnight — but real progress is being made right across the country.”