Australia’s housing crisis continues to worsen with recent data from the Australian Bureau of Statistics (ABS) indicating a drop in building approvals in April this year – a situation that could lead to a rise in rents and house prices in the coming months, says Tim Keith, managing director of Capspace.

According to the seasonally adjusted Building Approvals data released by the ABS, the total number of dwellings approved fell 0.3 percent in April from March. Approvals for private houses fell 1.6% nationally. Total dwelling approvals fell in Tasmania (-16.1%), NSW (-4.5%) and WA (-0.9%). Rises were recorded in SA (13.9%) and Queensland (5.0 per cent) while Victorian approvals were flat in April.

In trend terms, total dwelling units approved have dropped 6.7% from a year earlier, while private sector dwellings (excluding houses) have plummeted 27.6%.

“The sharp fall in building approvals over the last two years will keep upward pressure on property prices as the housing supply needed to accommodate a growing population falls well short of demand,” Keith said.

“Clearly, higher interest rates are weighing on the construction of units and houses, as well as the high level of inflation for building construction materials. The housing shortage is likely to worsen given the sharp drop in the number of dwellings approved since early 2021, which will keep upward pressure on residential property prices and rents,” he says.

One of the main factors pushing up inflation has been the high cost of housing, and this will continue to keep upward pressure on the overall inflation rate, Keith notes.

While property owners have benefited from price rises, investors should consider diversifying their portfolios into asset classes outside of property – such as investments in private credit – to spread their investment risk and gain more attractive income yields, he advises.

“Ultimately, it is assets other than your home, particularly those from which you can draw income, which will support investors in everyday living and in retirement. So other investment strategies should consider diversification into fixed interest,” Keith said.

“Private credit can deliver investors yields close to 10% per annum and investors understand their capital has protection based on the stringent loan process, lending and compliance policies, along with the security taken over borrower assets,” he adds.

Image: https://www.sharecafe.com.au/2023/11/02/australian-building-approvals-drop-in-september-but-house-prices-continue-to-rise/

Architecture & Design Team

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