The Role of Building Approvals in Projecting Future Housing Supply

Building approvals are crucial numbers in the building industry and provide an insight into the trends and current state of the housing market. Understanding how these numbers are produced and what they represent can help anyone interested in real estate investing.

This blog post will cover how building approvals are created, how they are interpreted and the factors that can affect them. We will also take an in-depth look into the building approvals data and gain a better understanding of the industry trends, expectations and regulations.

What Are Building Approvals?

Building approvals refer to the process of securing formal authorisation from the relevant local council or other regulatory bodies before beginning a building project. This is important to ensure the proposed project adheres to building regulations and is safe and suitable for the surrounding environment. Building approvals may also involve other checks such as heritage listing or environmental impact assessments.

They must be obtained before constructing, demolishing, or altering a building or other structure. Common building approval tasks include approval for renovating existing buildings, building on unoccupied land, and adding balconies or verandas etc.

Building approvals vary widely across Australia’s cities and regions due to the differences in population size and economic growth. Areas with higher population densities and sustained economic growth, such as Sydney and Melbourne, tend to have higher building approvals than areas with either lower population densities, such as regional towns and remote areas, or areas with stagnant or declining economic growth.

Explore the interactive chart below to understand more. You can toggle relevant markets off and on to see an updated visual and compare regions and capital cities by the number of building approvals.

The development of new homes and apartments is often limited in larger central districts due to existing infrastructure constraints, such as insufficient public transport or road networks, which can also affect building approvals. As government policies change or population sizes rise or decline in different parts of Australia, building approvals will continue to vary according to the individual needs of each region or city.

Types of Approved Dwellings

The types of dwellings that go through building approval processes in Australia include: detached houses, apartment buildings, townhouses, multi-unit developments, duplexes, retirement and aged care villages, granny flats, commercial buildings, and outdoor areas such as swimming pools, patios, decks, and garages. Here are some examples of residential building types that undergo the building approval process:

• Single Detached Houses: This is a traditional house that stands alone on a plot of land and includes the typical single family dwelling.
• Semi-detached Houses: This applies to two houses which are generally built side-by-side, but it may also refer to two houses which are connected by a wall or an adjoining piece of land such as a path or a drive way.
• Dual Occupancy Houses: These are two separate dwellings built on a single block, which can be connected to each other by walls or a driveway.
• Townhouses: This applies to a row of houses which are attached to each other and have shared outside walls.
• Villas: These are dwellings which may consist of single storey or multi-level units, often with individual balconies or verandas.
• Apartments and Units: These are dwellings which are part of a larger building and are usually located on one floor of the building.

All the different property types can largely be grouped in 3 categories:

• Houses (ABS code 110)
• Semi-detached dwellings (ABS code 120)
• Units (ABS code 130)

ABS is the main body that aggregates the building approval data and publishes it on a regular basis. The data for residential building approvals is usually reported as Private Sector Houses vs All Other Dwelling types.

HtAG Analytics reports building approval data for houses and units.

Factors Affecting Building Approvals

There are many factors that can affect the number of building approvals in Local Government Areas (LGAs). These include economic aspects such as population growth and job creation, as well as the availability of technology, infrastructure and planning regulations. Housing affordability levels and zoning restrictions may also play a role.

Moreover, the availability of land, access to finance and incentives from governments can also be influential. All these considerations must be taken into account when deciding the number of building approvals in any given Local Government Area and broadly are:

• Population growth: Council areas with higher population growth are likely to be approved more building applications. This is because the growing population will increase demand for new houses, offices and other commercial and industrial developments.
• Existing infrastructure: Existing infrastructure capacity is important in considering building applications. Areas with existing infrastructure that can accommodate the new development are more likely to be approved than those with inadequate and inadequate infrastructure.
• Land availability: Most council areas are limited in the amount of available land. Areas with more land or land that can be easily developed are more likely to receive building approvals.
• Local government and state policies: Local government policies are an important factor in approving building applications. Councils with more lenient policies towards development will be more likely to approve building applications than those with stricter policies.
• Local economic conditions: Council areas with robust economic growth are more likely to be approved for building applications. This is because the local economy will be able to support the new development by creating jobs and generating new sources of income.
• Local zoning and planning laws: Zoning and planning laws must be followed by councils to ensure that developments meet safety and environmental regulations. Councils that are overly restrictive in their laws are less likely to approve building applications than those that are more flexible.
• Distance to amenities: Generally, locations that are close to schools, shopping centers, and other amenities are more likely to receive higher building approvals than those farther away. This is because it’s beneficial for residents to have amenities located nearby.

Proportion of Building Approvals to Total Dwellings

The Proportion of Building Approvals to total dwellings in an area provides an effective means of understanding the location-specific activity within the housing market.

Building approvals indicate the number of new dwellings that have been approved to be built in a given region over a set period of time. By dividing this number by the total number of residential dwellings in the area, the metric allows for different size areas to be compared in terms of upcoming dwelling supply.

This provides a more accurate measure of housing market activity in different parts of the country by controlling for population size. This metric can be used to measure the supply-demand balance within a specific region and better understand the locations that are currently experiencing an increase or decrease in housing demand.

Summary

Factors that affect building approvals include population growth, existing infrastructure, availability of land, local government and state policies, economic conditions and zoning and planning laws. The proportion of building approvals to total dwellings provides a measure of the supply-demand balance within a given region.

ABS (Australian Bureau of Statistics) is the authority that publishes residential building approval data, which is grouped in three categories: houses, semi-detached dwellings and units. The data is published per Statistical Area 2 with a lag of up to 3 months.

HtAG Analytics uses Building Approval data in the calculation or Relative Composite Score for LGAs and suburbs Australia-wide. The data is first transformed from SA2 to suburb level, apportioned to the total number of dwellings in an area and then inputted into the RCS ranking algorithm.

The Building Approvals to Total Dwellings Ratio or BA Ratio will be added to Market Insights reports in the February 2023 data release.