Green shoots in construction don’t erase challenges: NAB

Most encouragingly, the report found that growth in construction costs is normalising, falling to 2.9 per cent in 2023. In addition, dwelling approvals appear to be gradually rising from recent lows, and capacity more broadly in the construction sector is expected to increase, aided by an expected lift in the unemployment rate.

CoreLogic’s head of residential research Eliza Owen noted that while recent indicators are good signs, significant challenges are still curtailing the sector’s ability to meet home building needs.

“Despite the recent normalisation in construction metrics, we will need to see a substantial comeback over the five years from July to reach the federal government’s ambitious target of 1.2 million well-located homes,” Ms Owen said.

“Annual dwelling approvals and completions are currently well below the target, which would require an average of 240,000 dwellings completed each year,” she added, noting that completion figures for the 2022–23 financial year indicated Australia had built well below that figure, at 173,000 homes.

Furthermore, the gap between supply and demand continues to widen, with the country currently building roughly 50,000 homes a year less than what it needs to simply keep pace with population growth.

The report highlighted how this issue has been a long time in the making – dwelling completions have been trending lower since the September quarter of 2018.

However, challenges lingering after the core pandemic disruptions have contributed to dwindling building.

The report also revealed that while there is usually a strong correlation between approvals and completions, albeit with a nine-month lag, there was virtually no corresponding spike in completions through to the end of 2023, despite a hike in approvals between June 2020 and June 2021.

NAB’s head of valuations and property advisory Mark Browning attributed the missing uptick to blown out construction timelines.

“The challenge to secure labour for the construction industry, considering the infrastructure builds underway across most states, remains significant,” he said.

Mr Browning said he hopes that training and targeted immigration will provide a way to bridge this resources gap.

Without a robust workforce, he also warned that any green shoots from recent construction activity will curtail the country’s ability to produce the residential supply it desperately needs.

“As noted, solutions are not simple or singular and will take time to show benefits,” he added.