• Australian property prices could continue roaring higher as new housing supply continues to fall behind buyer demand.
• The latest ABS data shows that construction numbers fell sharply in April, down 13.3% on their March peak.
• At the same time, researchers and productivity commissions have warned that new supply needs to be dramatically increased to put downward pressure on prices.
• Visit Business Insider Australia’s homepage for more stories.

Property prices have soared right on through a recession, a pandemic, and a construction boom, but with at least two of three headwinds now winding down, the market looks like it could kick higher again.

The latest ABS figures acknowledged the inevitable on Monday as a record construction spree, ignited by a flood of government stimulus, began to taper off.

While home approvals are still 54% higher than pre-pandemic levels, they fell 13.3% during April, coming off a March peak.

“The impact of the now-expired HomeBuilder has predictably waned with activity from the limited New Home Guarantee initiative for first home buyers also declining,” Archistar chief economist Andrew Wilson said.

While Wilson believes the construction sector will continue to drive the economic recovery, it spells trouble for first home buyers hoping for some of the abundant heat to come out of the market.

“Supply constraints… are likely to emerge as a result of a significant bringing forward of demand with higher building costs leading to higher new home prices,” he said.

While Sydney, the country’s most expensive market, was the only one to continue building greater numbers of home in April, approvals are still below 2016-2018 rates. Every other capital city meanwhile fell month-on-month.

But the recent turn is simply part of a broader trend, as a lack of supply helps push prices out of reach of many and compounding other planning problems, urban planner and UNSW professor Shane Geha told Business Insider Australia.

“It’s tough seeing young families moving further away from our world-class cities, their communities and the amenities that everyone craves for a great civic life. But they simply can’t afford to own a property in or near the locations they desire,” he said.

The wait time between new builds being approved and completed is significant, with construction having a longer-term impact on supply and prices, rather than an immediate one.

Historically, lagging supply has, in combination with other factors, helped drive house prices to their dizzying heights, according to researchers.

“Housing price inflation is driven by excess demand, but rapid demand stimulus as well as sluggish supply can generate excess demand for housing,” a team led by the University of New South Wales concluded last week.

This, they write, is exacerbated by “the timing of land release by developers and financial constraints on development capacity” among other factors.

It was further acknowledged by the New South Wales government’s Productivity Commission, which late last month called for urgent policy reform.

“Housing supply has failed to keep up with demand. That has led to an undersupply of housing, increasing the cost of living for households and making New South Wales a less attractive place to live and work,” it concluded.

A new government white paper recommended fast-tracking development applications and cutting red tape to speed up new housing. Restrictions on developers, from having to factor in mandatory car parking and business spaces for example should be re-evaluated, it proposes.

Geha agrees there’s an urgent need for the whole system to be overhauled.

“The New South Wales planning and zoning system has become extremely outdated and is now almost impossible to work with.There’s far too much onerous red tape, far too many cooks in the kitchen and as such, ultimately, it takes far too long to build anything,” he said.

But he isn’t hopeful a solution is forthcoming.

“Promises of a revamped, reinvigorated system have been just that, promises. But for those of us who are currently toiling away with the labyrinthine New South Wales Planning System, we cannot see or feel in a single Development Application that the process is improving. And this has dire consequences for house prices,” he said.

Reports suggest the state were already undershooting construction before the pandemic, with 10,000 more new homes needing to be built each and every year.

Certainly, the demand looks unlikely to abate anytime soon, even as COVID concerns again raise their head. CoreLogic noted over the weekend that “with a relatively low withdrawal rate and high preliminary clearance rate, it looks like the recent outbreak hasn’t had a material impact on Sydney auction markets.”

Meanwhile federal government solutions all seem to be aimed at pushing more buyers into the market, rather than ensuring a steady stock of affordable or social housing – a key proposal of the Federal Opposition.

Throw in a global timber shortage, a lack of foreign workers available to the construction sector, and a thinning pipeline of apprentices on the way, and the ability to build new homes at a competitive price point looks to be handicapped only further.

“The lack of skilled migrants in the construction sector entering Australia, is also having a significant impact,” Geha said.

“The employment being experienced, simply means that developers and employers have to pay more for both skilled and unskilled workers. This naturally results in yet another catalyst of increasing property prices.”

It means falling construction numbers are the last thing those priced out of the market need right now.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.