Figures of building approvals and lending data released by The Masters Builders Australia (MBA) in May 2023 show a welcome uplift in higher density home building approvals, but they warn of the need for sustained recovery and caution against unnecessary government-induced cost pressures.

Higher density home building approvals rose by 59.4 per cent during May, which is the strongest since the end of last year. Whereas detached house building approvals remained flat during the month and are about 15 per cent down on a year ago.

“May’s sharp increase in unit/apartment building approvals is welcome given the severity of shortages in the rental market” says Shane Garrett, chief economist from MBA. He asserts that the difficult conditions in the rental market are the result of prolonged under building in the medium/high-density part of the market, and this dates from before the pandemic.

Clearly the 12 interest rate increases we have endured so far have made it much more expensive to build new homes. “Higher mortgage rates have also forced up the cost of providing homes to the rental market.”

Lending figures provide a good indication of what’s likely to develop on the ground over the coming months. Garrett says “The number of loans for the construction of a new home eased slightly during May but there was a 5.1 per cent uplift in the number of loans for the purchase of newly built dwellings. However, loans are still over 40 per cent lower than a year ago.”

MBA Chief Executive Denita Wawn said that new home lending data suggest that tough times still lie ahead. “We will need to see a sustained recovery in higher density home building volumes before the affordability crisis in our rental market starts to abate.”

Ms Wawn says “While the fight against inflation appears to be favourably shifting, it is crucial not to jeopardise progress by imposing unnecessary cost pressures through government regulation. By pumping up costs right across the economy, proposed changes to industrial relations would be very counterproductive in terms of beating inflation and unduly add costs to construction.”

Fortunately, the RBA has seen fit to keep interest rates on hold today, given the larger than expected slow down in inflation last week. This is welcome news as it is universally agreed that we need to increase the construction of necessary new homes to combat the housing shortage.