Approvals vs Reality The Housing Crisis Explained

One of the many ways media misinforms Australian consumers is their misunderstanding of the difference between building approvals and actual construction of new dwellings.

Right now, at a time when we have major dwelling shortages and construction costs are so incredibly high, there is a very important distinction between the number of dwelling approvals and the number of homes actually being built.

The difference between the two is quite stark and it speaks to the biggest single problem amid the housing crisis – approvals often are not translating into actual construction of homes, because building costs are prohibitive and projects are simply not viable.

The latest official figures portrayed a significant rise in the number of new housing approvals – and many in news media completely misrepresented what that meant.

One headline by News Corp, the nation’s biggest median organisation, shouted:

Total housing construction reaches record high on new apartments

The article began with: “The total value of new homes being built or homeowners making alternations hit a record high in January.”

 

And that was all highly misleading.

 

The ABS data, in fact, said there was a rise in approvals for new dwellings and for alterations and additions. ABS head of construction statistics Daniel Rossi said the total number of dwellings approved in January rose 6.3% to 16,579, following a 1.7% increase in December.

 

Rossi said: that approvals for units and townhouses drove the overall rise, up 12.7%, to the highest level since December 2022.

 

The journalist who wrote that inaccurate headline and introduction should have known better because the article quoted a senior AMP economist pointing out that there remained a big gap between building approvals and completions, and between the number of new homes and the annual target of 240,000.

 

The Australian Financial Review made the same mistake with its headline:

 

The development tide has turned on apartments

 

AFR said: “Australia’s apartment slump has passed the worst, after new figures showed approvals of new apartments, townhouses and semidetached homes turning positive on a yearly basis for the first time in almost 2 ½ years.

 

The AFR quoted several economists at length, declaring that the worst was over and it augured well for the future in addressing the housing shortage.

 

You have to wonder whether economists speak to anyone in the real world or just look at numbers on their computer screens.

 

The reality is that approvals are almost meaningless – many approved developments are not proceeding because they are not financially viable.

 

And that is because the costs of building are so high and buyers cannot or will not pay the price developers would have to charge for the end product.

 

As HIA economist Maurcie Tapang said: “Despite modest improvements in housing approvals, Australia continues to face a significant shortfall in housing supply.”

 

HIA is calling on the Federal Government in the lead-up to the Federal Election to help remove the barriers to new housing supply.

 

And that includes the factors articulated in the recent report from the Productivity Commission, which noted that it’s taking twice as long to produce new homes compared to 30 years ago.

 

The commission said poor productivity was largely caused by bureaucratic red tape, cost impositions by government and high levels of taxation – which had rendered many approved projects too expensive to build.