The Crisis Worsens! Shocking Housing Approval Numbers
In this article, we delve into the severe housing crisis facing Australia, highlighted by plummeting building approval numbers. With a national vacancy rate of just 1.3%, the need for an additional 100,000 homes to balance the market is urgent. Explore why the government’s goals remain unmet and what steps are needed to address this ongoing issue.
What if I were to tell you that we would need an extra 100,000 houses just to get us to a balanced market amid this rental crisis?
We are so far from achieving any of the goals the government has set, and this is why we have such a big problem when it comes to housing—whether you want to own a house or just find a rental property.
In this article, I'm going to cover:
If you're interested in my thoughts, definitely keep reading.
Vacancy Rates in Australia
There is really no end in sight when it comes to our vacancy rates and available properties to rent right now.
Our national vacancy rate, according to SQM Research, is about 1.3%.
This means we're pretty much in a rental crisis, which is not news to anyone who's been reading my blogs or watching my YouTube channel for a while.
In fact, I predicted this probably about three years ago, saying that we were going to find ourselves in a severe housing shortage because things weren't changing as they should have.
Now, guess what? We've been here, and we've been here for a long time.
What we're looking for now is an escape. How do we get out of this? Because we want a balanced market, which would probably be at around 3 to 3.5%.
In order to get there, we would need to build an extra 100,000 homes and do nothing else.
This is assuming:
We don't have immigration coming in; and
We don't have people wanting to own new homes.
This means:
Now, we know in reality that will never happen because that’s not how the world works. This is further emphasised by our building approval numbers because, as I've said in my blogs and YouTube videos before, it takes a good 12 to 18 months before an approval becomes a completed project.
What I mean by that is:
When you decide to build a new home, you enter the approval process with the council. You'll say: Hey look, I'm planning to build this house. Please approve my plans.
This process can take anywhere between 6 weeks, if you're going through something like a Complying Development Certificate (CDC), all the way up to 18 to 24 months if you're going through a Development Approval (DA) with the council. Once you get the approval, then you have to go and build.
The Biggest Obstacle on Housing Approval
Now, one of the biggest obstacles right now is obtaining finance to construct a home.
If you think about it: If you're planning to build something, you’re in phase one. You then go into phase two, which is actually prepping for the approval process. Then, you go into phase three, which is getting the approval.
Once you have the approval, you're not done yet. You’ve got to go to the bank and convince them to give you a loan based on what they think the value of that property will be.
Once you have the approval and the mortgage, you can finally build. And guess what? It takes a hell of a lot longer to build a house now than it did, say, 10 years ago.
This means delay after delay after delay, and this is why we won't get to the magic number of 1.2 million homes that the government promised we would build.
Now, I think eventually, we will get to a position where the market balances itself out, but we need a few things to change.
One of them is that inflation needs to calm down, and we need interest rates to start cutting so that people can go out there and actually get the borrowing and funds to be able to do these things.
Latest Building Approval Figures
The latest building approval numbers have come in, and they're actually down to a historic:
Just take that in for a second. We are not building homes because the approval rate is at its lowest in 12 years. To give you some context, that takes us back to 2012, and I'm pretty sure J Shawn made a video about how the world was going to end that year because of some Mayan calendar.
If you have no idea what I’m talking about, that means you're really young (haha!).
Here’s a graph showing housing approvals for the month of June.
As you can see in the photo above, the states that are positive are Queensland at 14.6%, while Tasmania is at 8.8%.
The notable one here is the negative 8.5% we see in Western Australia, because we all know at this point the prices are absolutely absurd there, and it doesn't look like that’s going to change anytime soon.
There are suggestions that Queensland might slow down because so many approvals are coming in, but that’s when you need to dig even deeper.
When you actually look at how many houses versus townhouses versus units are being approved, I think you're going to find the answer to what you're looking for right there.
The same news report also added that Australian Housing and Urban Research Institute's Michael Fotheringham said the number of housing approvals often depends on the number of applications.
To highlight, he also added:
Understanding Shrinkflation
Now, I'm going to make a really relevant example here, and I know you're going to relate to this.
When you go out to the shops now, you’re often met with the same product but just less of it.
If you go out and buy Tim Tams, you'll find that the biscuits aren't as big. When you compare products that you purchased in the past, the prices may have remained the same, but the chips in the packet or the lollies in the packet have now significantly reduced in size.
This is often referred to as:
On the surface, you’re thinking, "Well no, it still costs the same amount."
But when you open a fun-size Mars bar, it used to be big, and now it isn’t—and that’s not fun.
In this case, size does matter.
It’s the same thing that’s happening with Australian real estate.
What you're finding is:
The blocks are getting smaller;
The houses are getting smaller; and
The price remains the same.
It gives you the illusion that: Hey, prices aren't so crazy. I can still afford something, but the dollar you're putting towards that purchase is just buying a lot less. And that is the problem we're seeing now.
Not only are you paying so much more money, but you're also getting a space that's significantly smaller.
This graph here shows the housing approvals since 2009:
We saw how the Home Builder package really affected housing approvals in 2021, but I said at that time that we were going to see the worst thing possible.
The solution to the problem became the problem itself, and what we saw was a reversion to the mean, but even lower than that, and what we’re seeing now are numbers that we haven’t seen for over 12 years.
This gives you insight into where prices will be in the next couple of years because unless you get approvals, you're not going to get supply, and you're clearly going to increase demand by having people come into this country.
Therefore, you're just going to have this mismatch, which is why prices are going higher.
Now, I know a lot of people come online and say, "Well, the prices have gone up so much. If people think prices can't come down, they're wrong because we've seen this time and time again."
Well, yeah, you may have seen it time and time again, but have you seen the same dynamics time and time again? I would argue that no, we haven’t.
Why?
How many pandemics have we gone through? And how many of those pandemics saw us print so much money?
Not only did we print money, but we had all these incentives like the Home Builder package that has now absolutely screwed up the market.
We’ve also been dealing with inflation for such a long time, and I don't know if that problem will go away overnight.
Going back to the report:
Now, it’s easy to say:
“Well, don't have as many immigrants coming into the country,"
"Just change up the planning process, and approvals will go through the roof,"
"Cut interest rates, and suddenly everyone can borrow and build a new home."
As you can tell, a lot of these things have a cause and effect.
This is why it is so interesting to see where the economy is at the moment and why every decision that's made right now has significant ramifications for your wealth and what your house will be worth in the next 3 to 5 years.
I hope you’ve learned a lot from this article!
I'll catch you in the next one.
Thanks, guys.
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