New South Wales rental crisis could worsen as building approvals slump to record lows, economist warns

Latest data from the Australian Bureau of Statistics (ABS) for the first three months of this year, shows a decline across the country — just as demand for housing is intensifying due to faster- than-expected population growth post-pandemic.

In NSW, total approvals fell by 34 per cent compared to the same quarter in 2022, but hardest hit were townhouses, units and high-rises which dropped to 50 per cent.

Senior economist with the Housing Industry Association (HIA) Tom Devitt said the “really weak” figures for this sector had been a surprise.

“We’ve been expecting that to strengthen this year and beyond because there’s a lot of demand for high-density living from overseas migrants and students who are coming back into Australia in really big numbers,” he said.

“The first quarter of 2023 saw the lowest number of total building approvals since 2012 in NSW and nationally.

“And Australia’s rental markets are really, really tight at the moment.”

According to the Real Institute of New South Wales, vacancy rates in Sydney are hovering at 1.3 per cent, compared to the national average of about 1 per cent.

Renters have also been feeling the squeeze after the median weekly rent increased by 13 per cent from last year to $711.

Until more housing comes into the pipeline, it will mean more bad news for availability and affordability, according to Mr Devitt.

“This imbalance will see the affordability and rental crisis deteriorate further.”

Ongoing interest rates rises — last week the Reserve Bank of Australia (RBA) announced its 11th in 12 months — coupled with the increase in the cost of construction and labour supply are being blamed as the main drivers of the decline in approvals.

“Over the course of the pandemic there’s been an incredible increase in construction costs,” Mr Devitt said,

“Some of those constraints have eased recently, but now the number one constraint is labour, builders trying to get their hands on skilled tradespeople.”

They’re concerns that resonate with the executive director for the Master Builders Association NSW, Brian Seidler.

He says the ABS’s data is “most unfortunate” for the industry given its role, identified by governments around the world, in leading the country out of the pandemic.

“The important issue for us, for the industry is to see a stabilisation of interest rates, but what do we do to attract more labour into our industry?

“We must address for the future, the cost of labour and the cost of labour is significantly increasing and will continue to increase until we get more skilled people into the industry.

“It’s the cost of labour that will really challenge the industry and those that invest in the industry.”

In the coming year the organisation is committed to attracting skilled workers from overseas and more young people to become apprentices.

Mr Seidler acknowledges how a further increase in migration could add to the current challenges.

“If you don’t have a place to house people then where do they live?