AUSTRALIAN apartment approvals tumbled to a 12-year low in February as capacity constraints and rising costs weigh on construction – right at a time when a surging population requires more homes to be built.

Private sector dwellings excluding houses plummeted 24.9 per cent to 3,771, the fewest since January 2012, government data showed on Thursday (Apr 4). Total building approvals – including houses – slid 1.9 per cent in February while January’s result was downgraded to a 2.5 per cent fall from 1 per cent previously.

In total 12,520 dwellings were approved, almost half the March 2021 peak.

“We are not seeing enough housing construction for how much demand we actually have,” said Diana Mousina, a senior economist at AMP. Annual approvals are close to 163,000, which is “just way too low because we need to be building about 240,000 homes a year to keep up with our population”.

The weakness in consents to build apartments and houses is running up against population gains fuelled by immigration, resulting in house prices climbing despite interest rates at a 12-year high of 4.35 per cent. Australia’s government has pledged to build 1.2 million new homes between July this year and mid-2029.

The capacity constraints reflect difficulty sourcing labour and rising prices for building materials as housing construction competes with massive infrastructure projects being undertaken by various levels of government.

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Annual building approvals would need to climb to 400,000 by 2027 in order to meet the government’s target – “historically off the charts” for the industry, said Timothy Hibbert at Oxford Economics.

“Australia has a significant stock deficiency which is set to grow further in coming years. Beyond the approval stage, construction time-frames remain extended and will slow the addition of new projects to the housing stock,” he said. BLOOMBERG