Author: Cam Olson, Head of Residential Development & Advisory
The National Housing Accord, agreed between the Commonwealth and all states and territories, aims to see 1.2 million new, well-located homes built between mid-2024 and 2029. This includes 20,000 affordable homes. This strategic initiative, combined with interest rates stabilising, has contributed to a modest rise in both dwelling approvals and the value of residential building at the end of 2024.
Housing approval rates are useful indicators of residential market sentiment, demand for the end product, and development feasibility.
According to the seasonally adjusted monthly figures the ABS released in December 2024, total dwellings approved rose 4.2% to 15,498 and the value of total residential buildings rose 3.2% to $8.33b. It is also worth noting that the ABS statistics highlight that demand is not consistent across all dwelling types. Private sector house approvals for the month fell 5.2% to 9,191, while other types of private sector dwellings rose 24.8% to 5,859. Approvals are up a modest 6.1% for the year, which is below estimates of underlying demand.
Supporting development
To help meet The National Housing Accord’s objectives, governments have started releasing and rezoning land for residential developments.
For example, in October 2024, the Victorian Premier Jacinta Allan announced a plan to unlock surplus government land near trains for more homes, progress housing projects in four suburbs with train stations, and release 10 other surplus sites for home development. By unlocking and rezoning surplus government land, the Victorian Government plans to deliver around 9,000 homes across 45 sites in both metropolitan Melbourne and regional Victoria.
In September 2024, the NSW Government introduced its State Significant Rezoning Policy, which involves 16 rezoning proposals to date (five additional sites were identified in December 2024). Through the state taking on more rezonings and reducing rezoning timeframes, this initiative is designed to expedite the delivery of more homes.
Types of developments
Different types of developments are trending in different capital cities and the regions.
The recent ABS seasonally adjusted data shows freestanding house approvals were down 5.2% in most areas of Australia in October, but up 2.4% overall year on year. South Australia bucked the monthly trend, with 905 houses approved (up 1%) – the highest result for the state since August 2021.
The ABS data also showed the decline in 9+ storey apartment block approvals has recently reversed. In October, 2,782 apartments were approved, primarily in New South Wales and Victoria, which is the highest number of approvals since January 2024. These developments will be key to delivering well-located and affordable housing.
Fast-tracked approvals
Historically, slow approval processes – and the associated holding costs – have had the potential to impact the value of land earmarked for residential development and the viability of projects. Slow approvals can also impact purchasers’ ability to secure finance on vacant land, as lenders generally prefer development sites with holding income.
To help remove this barrier to achieving residential development targets, many governments are taking proactive steps to streamline the approvals process.
For example, the NSW Government has introduced state-assessed planning proposals and state-led rezonings, which will create potential savings of 200 days compared to council approval processes for complex rezonings.
Some councils are also implementing initiatives to fast-track some approvals. For example, the Merri-beck City Council has put in place a Better Quality Two Dwelling initiative to streamline the approvals process for approximately one-third of all planning applications it receives. Under the new process, eligible applications are now being determined within six weeks from lodgment.
What’s driving demand for the end product
Beyond the government commitments associated with The National Housing Accord, market demand continues to be driven by simple supply and demand factors, as well as population growth and a steady decline in the number of people living in each dwelling.
According to the ABS, Australia’s current ten year average annual population growth rate is 1.4%. While that growth rate is projected to decline to 0.2-0.9%, the ABS forecasts Australia’s population will reach 34.3-45.9 million people by 2071. By 2046, the ABS also projects the number of households will increase from 10 million in 2021 to 13.3-13.9 million.
These supply and demand factors are currently being seen in Western Australia, which is experiencing a significant housing shortage that is being further exacerbated by positive population growth. This population growth has predominantly been driven by housing affordability, low unemployment rates and strong employment opportunities. While the demand is there, the increases in interest rates and construction costs in recent years, together with a diminishing builder pool within Western Australia, have created challenges for the feasibility of many infill projects.
Luxury products within affluent areas of Perth seem to be outperforming the rest of the market, as the end unit prices appear to be absorbing the increase in construction costs. For example, a 1,012sqm development site at 66 Waratah Ave, Dalkeith that can be developed with up to four lots under its R40 zoning, sold in August 2023 for $3 million. Dalkeith is an affluent Perth suburb and the site is located just east of a popular neighbourhood, mixed-use commercial strip. The Waratah Ave property was resold in June 2024 for $3.3 million, which represents an 10% increase in value in 10 months.
Issues still to watch
One of the biggest ongoing challenges for residential development approvals is likely to remain construction costs, which rose 3.2% for the 12 months ending September 2024 according to CoreLogic’s latest Cordell Construction Cost Index.
The ABS reports residential building construction demand rose 0.9% in the September quarter of 2024, which is one of the factors driving the costs rise. Other factors include the cost of building materials, which CoreLogic reports as having stabilised, the Fair Work Minimum Wage and Award wage rise coming into effect, and a tight labour market.
The concern about construction costs is affecting some feasibility assessments. For example, a small townhouse redevelopment site in the Sydney suburb of Sylvania sold in 2020 for $1.66m. As the site requires basement construction to be part of any redevelopment, potential construction costs are likely to have contributed to the site’s resale in 2024 for $1.55m.
Affordability of the end product also continues to be an issue for many Australian property buyers who are still navigating cost-of-living pressures in the current economy. In turn, this issue is playing out with ongoing high rental demand, investor wariness around potential government regulation, and the number of people retiring with a mortgage.
Cam Olson
Head of Residential Development & Advisory
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This article is produced by Opteon Property Group Pty Ltd. It is intended to provide general information in summary form on valuation related topics, current at the time of first publication. The contents do not constitute advice and should not be relied upon as such. Formal advice should be sought in particular matters. Opteon’s valuers are qualified, experienced and certified to provide market value valuations of your property. Opteon does not provide accounting, specialist tax or financial advice.
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