Key points:
  • Building approvals fall 1.0% in January, according to ABS
  • Detached houses approved for construction plunge 9.9%, which approvals for unit dwellings bounce back to 19.5%
  • Amid the slowdown in appprovals, vacancy rates continue to decline to record-low levels after dropping to 0.7% in February
  • Competition among renters is stiffest in Perth and Adelaide, where vacancy rates fall to 0.3%
  • All capital citles have below 2% vacancy rates
  • Renters are breaking into the housing market through fixer-uppers, pushing prices of distressed properties up
  • A buyers agent warns against rushing into the market by buying rundown properties that can potentially be more costly than expected

Total dwellings approved in the first month of the year fell by a seasonally adjusted 1% to 12,850. 

The latest read marks the third consecutive month the rate of approvals has been trending downwards, following the 9.5% fall in December

ABS head of construction statistics Daniel Rossi said the 9.9% fall in approvals for detached houses drove the January decline. 

“In trend terms, private sector houses have fallen for four consecutive months,” he said. 

Approvals for the much volatile units bounced back from a 19% drop in December to a 19.5% rise in January, which Mr Rossi attributed to “the rise in apartment approvals in Queensland”.  

Approvals of unit dwellings in Queensland saw a 123% spike in January to 1,752 from 786 in December. 

As such, Queensland led the charge with the biggest monthly increase in total buildings approved at 31.8%, followed by Western Australia (up 11.4%) and Tasmania (up 5.1%). 

However, notable slumps in New South Wales (down 14.9%), Victoria (down 9.8%), and South Australia (down 7.2%) pulled the figures down. 

Housing Industry Association chief economist Tim Reardon attributed the slowdown in approvals to the high cash rate, which currently sits at 4.35%.

“The low volume of building approvals throughout 2023 will see the volume of homes commencing construction continue to slow this year,” he said.  

The value of total dwelling approved rebounded to 14.7% in January after it nosedived by 6.7% in the month prior. 

Slow building approvals worsen rental crisis

The deceleration of dwelling approvals contrasts sharply with the rapid growth of demand, resulting in stiff competition for rental homes and tenants becoming increasingly desperate to break into the housing market. 

Latest Domain data revealed nationwide vacancy rate plunged to a new record low of 0.7% in February. 

This came at the heels of the release of housing values data showing home prices across the country have increased by a further 0.6% last month.  

“The mismatch between low supply and rising demand is an ongoing challenge for tenants amidst rapid population growth [driven by] overseas migration, a strained construction sector, and rising property prices locking people into renting for longer,” Domain chief of research Dr Nicola Powell said. 

Record low vacancy rates were noted in the majority of capital cities. 

Competition among tenants remained stiffest in Perth and Adelaide, which both posted 0.3% vacancy rates. 

In Sydney and Melbourne, only 0.8% of rental properties were available last month, a new record low for both capitals. 

The low level of supply also made it harder for tenants in Brisbane to find a home as the vacancy rate in the city was down to 0.7%. 

Vacancy rates in Canberra and Darwin both dropped to 1.3%, while Hobart remained steady at 0.7%.

A vacancy rate of 2-3% is considered a healthy market where supply matches demand; anything below 2% is considered tight. 

Despite the downturn in February and vacancy rates across the country remaining at critical levels, Domain said the figures may pick up “sometime this year” on account of the persistent decline noted in the number of views per listing.

“While supply has fallen to a record low, the number of prospective tenants per rental listing is easing, indicating falling competition between renters,” Dr Powell said. 

“This supports the trend of slowing rental growth, suggesting demand is pulling back.”

Aussies break into the housing market through fixer-uppers

Experts have previously noted the chronic supply shortage of rental stock has driven many renters to exit the market and purchase a home “if they can afford to do so”. 

“Tight rental markets have probably incentivised renters to transition towards homeownership,” CoreLogic research director Tim Lawless earlier said. 

More homebuyers are also entering the market amid improving sentiment buoyed by the widespread expectation that the RBA will lower rates this year. 

However, this increasing demand for houses is not only raising the prices of the average home but also – to the surprise of real estate professionals – of properties in poor condition. 

“There’s been a surge in buyer demand, primarily driven by the belief that now is the opportune moment to buy before the Reserve Bank potentially lowers rates later in the year,” said George Cherchian of James Chase Buyer’s Advocacy. 

"This has reignited FOMO (fear of missing out) with a vengeance, pushing buyers towards even the most neglected properties. A good example of this is a semi in Annandale that sold for $1.31 million at auction, significantly above the guide price of $850,000.”

As buyers rush to purchase, prices of properties in really bad shape are going up. 

Bolstered by stabilising construction costs, the idea of renovating a rundown property has become more palatable, according to Mr Cherchian. 

The latest Cordell Construction Cost Index showed prices of materials for building new dwellings have cooled to 2.9%, the smallest annual rise since March 2007 and falling below the pre-Covid decade average of 4.0%

However, Mr Cherchian cautioned homebuyers against rushing to break into the housing market through fixer-uppers which can potentially be more costly than expected.  

“While the initial lower purchase of a fixer-upper might seem attractive, the reality of renovation can be a rude awakening,” he said. 

“Costs can escalate quickly, and there are always unforeseen challenges that can turn what seemed like a good deal into a financial burden.”

But for those who have decided to buy a distressed property, he said research and risk-preparedness is key. 

“Do your homework. Understand the full scope of what you’re getting into, including renovation costs and potential overruns,” he said.

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