Australia’s housing market has received a shot of confidence, with new data from the Australian Bureau of Statistics (ABS) revealing a notable rise in building approvals ahead of the Reserve Bank of Australia’s (RBA) next monetary policy meeting.
In seasonally adjusted terms, total dwelling approvals rose by 3.2 per cent in May to 15,212, breaking a downward trend and marking a 6.5 per cent increase compared to the same time last year.
According to the ABS, this growth was underpinned by a 0.5 per cent rise in approvals for private sector houses, while private sector dwellings excluding houses — such as apartments — climbed 11.3 per cent following a sharp 19 per cent drop in April.
Cash rate cuts spur new confidence
“Two cuts to the cash rate have seen the volume of detached house building approvals rise to be 3.2 per cent higher than the same month last year,” said HIA Senior Economist Tom Devitt in response to the data.
“New house approvals were 1.1 per cent higher in the three months to May compared to the previous quarter.”
Mr Devitt said improved affordability, combined with interest rate reductions and expectations of further easing, had brought more new home buyers back to the market.
“Building approvals have followed other leading indicators to show that new home buyers are increasingly returning to the market,” he said.
“With two interest rate cuts in the back pocket, and further cuts expected, more buyers are able to sign that contract for a new home build.”
While the strongest states for growth were South Australia (+29.4%), Queensland (+18.6%) and Western Australia (+14.9%), New South Wales (+8.6%) and Victoria (+0.1%) are also now seeing increased activity.
“Western Australia, Queensland and South Australia were already seeing improved numbers on the ground on the back of strong population dynamics, recovering household incomes and low unemployment. Now New South Wales and Victoria appear to be joining the party,” said Mr Devitt.
‘Phantom approvals’ in higher-density housing
Despite the improvement in approvals for apartments and other multi-unit developments, Mr Devitt remained cautious.
“Multi-unit approvals in the last three months were 25.0 per cent higher than the same quarter a year earlier, but recent activity is likely driven by ‘phantom approvals’,” he said.
“Some apartment projects that were already approved for construction but hadn’t commenced yet, are returning for re-approval ahead of the introduction of the National Construction Code 2022 which will increase construction costs further.”
However, many of these projects are unlikely to proceed in the near term.
“But you can’t live in an approval,” Mr Devitt said. “These projects, which have not been viable over recent years, are unlikely to get the necessary sales to commence construction over the next couple of years. Securing apartment pre-sales at current market prices has been challenging.”
He warned that multi-unit commencements need to double to meet federal housing targets, but that this is “unlikely to occur if state governments continue to impose additional taxes on institutional investors.”
He added that NSW’s recent State Budget commitment to guarantee apartment pre-sales would likely drive a “tangible increase” in apartment starts in Sydney.
“Regardless of the increase in approvals, the volume of commencements will fall more than 20 per cent short of the government’s goal of building 1.2 million homes,” Mr Devitt concluded.
Echoing Mr Devitt’s concern, Oliver Hume’s Chief Economist Matt Bell said the recent downward trend and the dependence on unit approvals, which are currently struggling to convert into commencements, is concerning.
“The National Housing Accord Target is 240,000 new dwellings per year and as at the end of 2024, dwelling completions sat at 177,000. Even if completions rose to the same level the current approvals imply, we are going to miss the 5-year target of 1.2m homes by at least 25%,” said Mr Bell.
“The market is going to have to deliver significantly more vacant land sales to support an increase in new houses delivered as well as get more apartments coming out of the ground if we are to improve affordability outcomes for first home buyers over the long term.”
The increase in approvals comes at a critical moment, as the RBA prepares to meet on Monday and Tuesday (7–8 July).
Bank has already delivered two rate cuts in 2025, citing easing inflation and subdued growth.
