Much in our lives has changed since the days prior to the arrival of the COVID-19 epidemic in 2020. One aspect has been the unprecedented resilience of the housing market, which has remained strong despite predictions to the contrary.
A recent study by the Bureau of Statistics of data from the past five years shows that the conditions for residential building in Australia have changed considerably over that time.
Dwelling approvals and commencements grew rapidly, driven by a demand for new houses together with changing migration patterns that saw regional populations grow in 2020-21 along with a rising share of home approvals numbers.
The report shows that global supply and trade shortages meant that the industry was unable to keep up with the construction of these new dwellings, ultimately leading to a bottleneck of homes under construction and longer completion times. These conditions have led to higher construction costs, creating a challenging environment for builders and prospective new home owners.
In 2019-20, following the end of a large expansion in apartment buildings in the mid-2010’s, the total number of approvals and commencements fell to the lowest annual totals since 2013-14.
Following the introduction of record low interest rates and government stimulus programs directed at home building, approvals and commencements surged again in the second half of the 2020-21 financial year, to 221,974 and 213,379 respectively. This was an increase of 27.2% for approvals and 23.4% for commencements from 2019-20 and were the highest levels since 2017-18.
Longer lead times for other residential buildings meant that they did not qualify as easily for these government stimulus programs. Subsequently, new houses drove the increase, representing 66.4% of dwelling approvals and 65.8% of commencements in 2020-21.
Since 2020-21, however, both approvals and commencements have fallen each year, coinciding with increasing interest rates and construction costs. By 2023-24, these were at the lowest totals seen since 2011-12.
Private new houses drove the increase in dwellings approved and commenced in the 2020-21 financial year, with 145,507 private houses approved and 138,596 commencing. Both approvals and commencements peaked in the June 2021 quarter with 40,845 and 42,475 dwellings respectively. This was significantly higher than the pre-pandemic (from 2014-15 to 2018-19) quarterly average of 29,112 approvals and 28,783 commencements.
New house approvals increased across all states and territories, in seasonally adjusted terms. Each state and territory peaked in 2021 at a significantly higher level than their pre-pandemic quarterly averages (from 2014-15 to 2018-19).
Unfortunately, however, construction delays have led to a large increase in the time from start to finish for new houses. The average new house completion time for Australia increased 50.0% since September 2019, from 6 months, 3 weeks to 9 months, 4 weeks in June 2024.
During the pandemic construction demand increased significantly, coinciding with global supply chain disruptions, rising material and freight costs, and labour shortages. These all contributed to the increased cost to build new homes.
Many new houses are built with fixed price contracts, where the builder agrees to perform the work for a fixed sum. This meant during 2020-23, many builders had signed fixed price contracts for permits which were approved before demand and costs increased. The nature of these contracts and their impacts on builder margins further contributed to the challenging construction environment and the backlog of houses under construction.
The average cost of completed homes in Australia has risen from $345,410 in 2019-20 to $443,828 in 2023-24. Across this period, the average annual cost increase was 6.7 per cent.
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