Home building through the pandemic

The conditions for residential building in Australia have changed considerably over the past 5 years. This article provides an overview of residential approvals and activity in Australia, primarily from July 2019 to June 2024. Periods prior to 2020 are referred to in this article as ‘pre-pandemic’, before the emergence of COVID-19 in Australia. 

Dwelling approvals and commencements grew rapidly, driven by private new houses and some changing migration patterns that saw the regional population grow in 2020-21 along with a rising share of home approvals. Global supply and trade shortages meant that the industry was unable to keep up with the construction of these new dwellings, ultimately leading to a bottleneck of dwellings under construction and longer completion times. These conditions have led to higher construction costs, creating a challenging environment for builders and prospective new home owners.

The data presented in this article are sourced from Australian Bureau of Statistics' (ABS) monthly publication 'Building Approvals, Australia' and quarterly publication 'Building Activity, Australia' and has been presented as financial year or quarterly totals for comparability. 

In 2019-20, following the end of a large expansion in apartment buildings in the mid-2010’s, total sector dwelling approvals (174,528 dwellings) and commencements (172,959 dwellings) declined to the lowest annual totals since 2013-14. 

Dwelling approvals and commencements then surged in the second half of the 2020-21 financial year following the introduction of record low interest rates and government stimulus programs directed at home building. Total dwelling approvals and commencements in the 2020-21 financial year rose to 221,974 and 213,379 respectively. This was an increase of 27.2% for approvals and 23.4% for commencements from 2019-20 and were the highest levels since 2017-18. Longer lead times for other residential buildings meant that they did not qualify as easily for these government stimulus programs. Subsequently, new houses drove the increase, representing 66.4% of dwelling approvals and 65.8% of commencements in 2020-21.  

Since 2020-21, dwelling approvals and commencements have fallen each year, coinciding with increasing interest rates and construction costs. In 2023-24, dwellings approved and commenced fell below 2019-20 levels; approvals were 6.4% lower at 163,279 dwellings and commencements were 8.2% lower at 158,690 dwellings. These are the lowest totals seen since 2011-12 which were 149,889 and 145,350 dwellings respectively. 

Private new houses drove the increase in dwellings approved and commenced in the 2020-21 financial year, with 145,507 private houses approved and 138,596 commencing. Both approvals and commencements peaked in the June 2021 quarter with 40,845 and 42,475 dwellings respectively. This was significantly higher than the pre-pandemic (from 2014-15 to 2018-19) quarterly average of 29,112 approvals and 28,783 commencements. 

Private new house approvals increased across all states and territories, in seasonally adjusted terms. Each state and territory peaked in 2021 at a significantly higher level than their pre-pandemic quarterly averages (from 2014-15 to 2018-19). 

The surge of commencements in June 2021 created an influx of new houses being built and moving through construction stages at the same time. This led to competing demand and shortages for the same trades and materials, which caused construction delays. With projects stalling at various stages of construction, new houses took longer to complete. Extreme weather events and construction industry insolvencies further added to the construction delays, leading to a bottleneck of houses under construction, which has started to ease through mid-2023. 

Dwellings under construction peaked in March quarter 2023 at 104,315 dwellings, which is 48.4% higher than the pre-pandemic record of 70,306 in June quarter 2018. Since then, there has been improvements in the trade and material supply, and lower approvals have led to less work in the under-construction pipeline. The industry has gradually worked through the backlog of houses, resulting in a reduction in the number of private new houses under construction to 87,149 in June 2024. 

WA has experienced the largest bottleneck of builds under construction of all the state and territories. Since 2019-20 there has been a 175.8% increase in number of private new houses under construction, increasing from 25,726 to 70,944 dwellings in the 2023-24 financial year.

The construction delays led to a large increase in the time from commencement to completion for new houses. The average new house completion time for Australia increased 50.0% since September 2019, from 2.2 quarters (6 months, 3 weeks) to 3.3 quarters (9 months, 4 weeks) in June 2024. Completion times in Western Australia increased the most, from 2.3 quarters (6 months, 4 weeks) in September 2019, to a high of 5.4 quarters (16 months, 1 week) in March 2024.

During the pandemic construction demand increased significantly, coinciding with global supply chain disruptions, rising material and freight costs, and labour shortages. These all contributed to the increased cost to build new homes.  Many new houses are built with fixed price contracts, where the builder agrees to perform the work for a fixed sum. This meant during 2020-23, many builders had signed fixed price contracts for permits which were approved before demand and costs increased. The nature of these contracts and their impacts on builder margins further contributed to the challenging construction environment and the backlog of houses under construction.

The average cost to build is a lagged indicator of the current construction environment, as it is calculated based on houses which have completed, not those currently under construction. The average cost of completed homes in Australia has risen from $345,410 in 2019-20 to $443,828 in 2023-24. Across this period, the average annual cost increase was 6.7%.

All states and territories experienced a cost increase over this 5-year period. The highest growth rate in new house construction costs over this period was in Queensland, increasing from $312,857 in 2019-20 to $450,612 in 2023-24, an average annual increase of 9.9%. The lowest cost growth rate can be observed in Western Australia, increasing from $316,846 in 2019-20 to $382,044 in 2023-24, an average annual increase of 5.2%. However, WA has the longest completion times of all states and territories which may contribute to a lagged increase in construction costs recorded. 

Australia tends to have a higher proportion of new houses than other types of dwellings. This increased further during the pandemic, with approvals increasing 40.2% (to 147,349) from 2019-20 to 2020-21. This rise led to a 6.1 percentage point increase (to 66.7%) in the proportion of all dwellings that are new houses in 2020-21, as new houses rose more than new townhouses and new apartments. This increase in the proportion of new houses was partly due to shorter lead times qualifying more easily for government stimulus in 2020 than larger apartment buildings, which require longer lead times for developing and commencing construction. New houses were approved in more regular proportions in 2021-22 (61.6% of dwellings) and 2022-23 (60.6% of dwellings) as government stimulus ended.

The number of apartments approved were flat from 2019-20 to 2022-23 and fell to just 29,470 approvals (18.1% of total new dwellings) in 2023-24. This is the lowest number of apartments approved since the 2008-09 financial year which had 21,233 dwellings approved. This reflects the increasingly challenging conditions for apartment buildings owing to long lead times and high construction costs. 

Of the 580,879 private new houses approved during the five-year period, 381,514 dwellings (65.7%) were in greater capital cities, while 199,365 dwellings (34.3%) were approved across the rest of Australia. The proportion of dwellings built in greater capital cities declined in 2020-21, falling from 67.0% in 2019-20 to 64.7%, and remaining in this range until 2023-24, increasing back to 67.7% from 64.9% in 2022-23. This is in line with changing migration patterns in 2020-21, which has since shifted back to growth for capital cities in 2022-23. 

There was a drop in the proportion of new houses built in greater capital city areas across all states from 2019-20 to 2020-21: Tasmania (-5.9 percentage points), Victoria (-5.6 percentage points), Queensland (-3.4 percentage points), South Australia (-3.3 percentage points), Western Australia (-2.2 percentage points) and New South Wales (-1.4 percentage points).

Since 2020-21, the proportion of new houses being built in greater capital city areas has increased in Victoria (+8.5 percentage points), Queensland (+5.4 percentage points) and Western Australia (+1.2 percentage points). Conversely, Tasmania (-4.8 percentage points) New South Wales (-2.8 percentage points) and South Australia (-0.3 percentage points) have remained at lower levels since 2020-21.

The data has been presented in original current prices, meaning it has not been adjusted to remove seasonal variations or price changes. For further information on statistical adjustments refer to the Building Activity methodology.

The values presented in this article are defined as follows:

• The value of approval is the estimated total cost of building work at the time of approval, as reported on building approval documents provided to local councils or other building approval authorities. 
• The cost of a building is defined as the total value of the dwelling at its completion, as reported by the respondent at the final stage of construction. This value includes direct costs associated with materials, labour, engineering, architectural services, and in-built fixtures and fittings. Costs associated with land purchase and landscaping are excluded.

This focus of this article is on new residential dwellings which includes houses and other residential (townhouses and apartments). The type of dwellings are defined as follows: 

• 'Houses' - defined as detached buildings used for long term residential purposes, consisting of only one dwelling unit and are not a result of alterations or additions to a pre-existing building.
• 'Townhouses' - defined as semi-detached row or terrace houses attached in some structural way to one or more dwellings, with their own private grounds and no separate dwelling above or below.
• ‘Apartments’ - defined as blocks of dwellings that don't have their own private grounds and usually share a common entrance, foyer or stairwell.

Most of the data is presented as total sector, however the article also references some private sector series. Sector refers to the ownership of the building as public or private, total sector is the sum of both types of ownership. 

For further information refer to 'Functional Classification of Buildings, January 2021'.