Approvals rise despite skyrocketing construction costs

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The average cost of approved homes rose 22% nationally in February, due to soaring construction and labor costs.

Housing approvals for February rose 43.5% after a record 27.1% plunge in January, according to ABS data.

ABS building statistics director Daniel Rossi said increases were recorded across all housing types, with the apartment sector seeing the strongest growth.

“February’s rise was driven by a surge in apartment approvals in New South Wales and Victoria,” Rossi said.

Total apartment approvals increased by 78.3% – Total housing approvals in Victoria increased by 91% while NSW increased by 48.8%.

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

Queensland recorded a decline of 14.6% in January and 34.5% for the year.

The ABC’s Stephen Wu said Queensland’s figures were at odds with high net interstate migration.

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

National State Housing Approval: February 2022

Private sector houses (number) Private sector houses (monthly variation in %) Total House Approvals (number) Total Home Approvals (Monthly % Change)
New South Wales 2653 27.2 5543 48.8
Victoria 3246 20.1 7130 91.0
queensland 1997 6.4 2719 -14.6
southern australia 753 7.6 1127 35.9
Western Australia 1189 11.5 1230 8
Tasmania N / A N / A 285 12.2
North territory N / A N / A N / A N / A
Australian Capital Territory N / A N / A N / A N / A
Australia 10,240 16.5 18,675 43.5

^ Source: ABS

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

“These numbers are unlikely to reflect a sudden spike in housing demand, but rather a normalization after an Omicron-induced drop last month,” Wu said.

“In January, significant labor supply issues impacted the ability to process approvals, which likely contributed to a much larger decline and then now recovery than actual demand. did not justify.

“The number of private individual housing approvals increased by 16.5% nationally.”

Wu said that from mid-2021 highs due to HomeBuilder subsidies, the national housing approval level was down.

“It’s just one of many metrics that point to a cooling in the housing market,” Wu said.

“The ABC projects nationwide house prices to be flat in 2022 and down 8% in 2023.”

National housing approvals by sector: February 2022

February 2022 (figures) Monthly variation (%) Annual variation (%)
Total number of houses approved 18,675 43.5 -7.8
Private sector houses 10,240 16.5 -27.4
Private sector households excluding houses 7183 78.3 25.5

The approval value of non-residential buildings rose 132%, but Wu said the monthly measure was volatile.

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

“It’s an example of how volatile metrics can be due to large individual projects.”

Along with the approval increases has been the increase in the average cost of housing.

The average approval value of a home in February 2022 was $388,300, up $70,000 from $318,600 in February 2021, according to BIS Oxford Economics senior economist Timothy Hibbert, who has said this reflected continuing problems in the construction sector.

“The spike in construction costs continues to be felt, with the average cost of approved homes now up 22% nationally on the year to February 2022,” Hibbert said.

In January, Omicron was touted as a reason for low approval numbers, planning staff facing restrictions or isolation and labor shortages and construction supply issues.

But February and March saw continued supply shortages and other extreme event concerns both at home and abroad, driving up costs across all sectors.

“With flooding and conflict in Europe adding to the list of supply issues in the first quarter of 2022, cost pressures continue to mount,” Hibbert said.

Rider Levett Bucknall’s Q1 2022 Tender Price Index highlighted several factors that make it difficult to predict what the year ahead will look like for the sector.

“The first quarter of 2022 saw an increase in ‘known unknowns’,” said RLB chief executive Stephen Mee.

He highlighted fragmented supply chain issues, the slow reopening of Australian borders, the current state and federal elections, the economic cost of flooding with the potential for additional rain expected as factors affecting the industry.

“Demand for contractors, labor, factories and materials continues despite recent shutdowns, supply chain influences and the slowing economy due to Covid-19,” said Mee said.

“As the true extent of the recent devastating floods in New South Wales and Queensland become known, the pressure will be on for additional materials, plants and labor for the rebuilding efforts. within these communities.

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

“The conflict … generates flows on effects such as rising fuel prices, potential wood shortages due to unstable imports from the Baltics and a generally very unstable geopolitical landscape,” he said. .

Hibbert said increased delays in the construction sector are expected for the rest of 2022.

“We expect further trend growth in housing approvals, but at a much more modest pace over the coming months.

“Very low interest rates, strong sales of greenfield land in 2021 and elevated pressure on housing stock will continue to support housing construction at a deeper high in 2022.”

RLB predicted that an interest rate hike by the Reserve Bank could dampen the housing market.

“Going forward, all RLB offices anticipate market price volatility due to the factors identified above,” the RLB report states.

While downtown Melbourne high-rise residential activity was subdued, mid-density apartment activity was stronger with an expected continued increase in build-to-rent market activity.

In Sydney, however, demand for city center apartments has remained subdued as many take advantage of rising prices to sell and then buy apartments in premium suburbs where demand is rising.

Mee said Sydney’s construction costs had risen at a faster rate than inflation.

“This is a trend that is expected to continue as construction demand outstrips the supply of labor and materials.”

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