Developers have yet to begin work on almost 40,000 new homes across Australia – including 11,170 in Sydney – despite being granted building approvals, with stubbornly high interest rates and construction costs being blamed.
According to KPMG analysis released on Tuesday, 15,593 dwellings with planning approval were yet to break ground across New South Wales by December 2023. It was only a slight improvement on the state’s figures a year earlier, when there were 15,818 approved dwellings across NSW where work was yet to commence.
In Victoria, 7,897 dwellings – 6,840 of which are in Melbourne – were yet to break ground, compared with 9,577 stalled projects at the same time in 2022.
The KPMG urban economist Terry Rawnsley, who conducted the analysis, said Sydney and Melbourne make up almost half of all “approved but not yet commenced” projects across the country. About 80% of these stalled projects were townhouses and apartments.
He said the higher cost of materials and finance was making it harder for developers to build larger projects profitably, while increases in interest rates have limited buyers’ purchasing power.
“With all the construction price increases and where interest rates have landed, it’s hard for developers to make those more medium to high-density projects stack up,” Rawnsley said.
“Sometimes people also forget that interest rates also impact on the developer side as well – it means they can’t borrow as much to get the projects up and running.”
According to KPMG, Brisbane has seen a 3.8% increase in stalled dwellings over the 12 months, largely with detached housing, while the ACT had a record number of buildings approved but not started, almost doubling from 864 to 1,772. Adelaide and Perth remained stable.
Speaking generally, Jago Dodson, a professor of urban policy at RMIT University in Melbourne, said developers’ “conservative approach” in recent years was due to constraints caused by labour, materials and finance.
“There are probably a lot of developers that are making the decision that it’s cheaper and less risky to press pause at this point in time rather than to proceed and expose themselves to a whole raft of risks that are historically unusual,” he said.
“For the preceding 20 years we had a very stable construction sector, materials costs and interest rates.
“It’s a bit of a departure from that period that we’ve been witnessing in the past couple of years and until we see some clarity as to what the future holds, it would not be surprising to see more developers making these decisions to pause at the planning stage.”
Australian Bureau of Statistics data from December showed a drop in new dwelling approvals in spite of efforts from the NSW and Victorian governments to increase housing.
The NSW government’s flagship policy – called the Transport Oriented Development Program – will see land around dozens of train stations and transport hubs rezoned for denser housing to allow for uplift along transport corridors.
Last September the Victorian government released a housing statement that included plans to speed up development approval times, rebuild ageing social housing towers and unlock land in established suburbs in an effort to build 800,000 new homes over the next decade.
But Rawnsley said it would take several years for each state’s reforms to flow through to the market.
“It is going to take developers time to find sites to build new projects on, design the project, build the project, then get it to the market,” he said. “So it’s quite a lag on that front. It will probably be 2025 before we see the effects.”
He said a slowdown in infrastructure spending by governments could also help developers by lowering the cost of some materials, such as concrete, while interest rates were beginning to stabilise.
“I’m somewhat optimistic that we’ve hit the bottom when it comes to number of building approvals. The market is stabilising; interest rates might come off a touch as well,” he said.
Additional reporting by Tamsin Rose
