According to a recent KPMG Australia study, a 30% surge in residential construction costs over the last two years has prompted developers to shelve several projects as property prices in Sydney and Melbourne flatline.
The study noted that almost 16,400 dwellings in NSW that were approved but hadn’t commenced by the end of March, up from 13,800 at the same time last year. The last time construction levels stalled with a high number of approvals in NSW was in 2019, when developers were not commencing projects due to historically high vacancy rates (3.5% in Sydney, compared to 1.4% today).
In Victoria, almost 10,500 dwellings that were approved but hadn’t commenced by the end of March – up significantly compared to 5,000 dwellings in March 2022.
Notably, 75% of these not-yet-commenced dwellings in NSW and Victoria are slated to be apartments or townhouses.
“Property developers are shelving projects because of soaring costs and lacklustre property prices. Some are even going bust,” KPMG urban economist, Terry Rawnsley said. “Both Victoria and NSW have increased demand for new dwelling approvals, but dwellings are far from materialising, due to significantly higher input costs and a potentially lower return on investment.
“Queensland and WA haven’t seen the same slowdown in residential construction, largely due to the fact that house prices in those states have remained comparatively more robust. Those states also have a smaller proportion of new medium and high-density dwellings, which tend to be more sensitive to cost increases.
“With the increases in construction prices starting to moderate and property prices in NSWF and Victoria stabilising, the rapid increase in dwellings not yet commenced is starting to slow.
“Still, the trend in NSW and Victoria is unlikely to reverse anytime soon, with construction cost increases tipped to return to historical growth rates, firmly down on the 30% hike we’ve seen over the last two years.
“These not-yet-commenced dwellings represent a pool of approved homes, which can be quickly delivered when market conditions improve.”