Sydney had its worst year for building approvals in a decade. Here’s why there are signs of life

Sydney has registered its worst year for building approvals in more than a decade despite government promises to boost the city’s supply of new housing.

There were 28,322 residential buildings approved in Sydney during 2024, the lowest since 2011 and less than half the 58,000 approved in 2016 at the peak of last decade’s building boom.

However, there are tentative signs of recovery after a spike in approvals towards the end of last year, analysis by KPMG shows.

The report comes ahead of a Reserve Bank board meeting on Tuesday which is likely to deliver borrowers the first cut in official interest rates in five years.

The construction sector in NSW was hit hard by the surge of inflation starting in early 2022 that pushed up interest rates and caused building costs to spiral higher. There were more insolvencies in the building sector than any other NSW industry last financial year.

Terry Rawnsley, a KPMG urban economist who analysed city-level building approval data collected by the Australian Bureau of Statistics, said weakness in Sydney’s housing construction sector persisted in 2024 due to cost pressures in the new apartment market, as many developers continued to struggle with the viability of big projects.

2024 was Sydney’s worst year for building approvals in more than a decade. Credit: Wolter Peeters

“Sydney remains very reliant on high-density housing, which is facing tough commercial feasibility challenges as developers struggle to get major projects off the ground,” he said.

Premier Chris Minns has made lifting the supply of new dwellings a top priority; in May, the NSW government announced a target to build 377,000 new homes in NSW over five years, 70 per cent of them in Sydney.

But new dwelling completions have fallen way behind the rate needed to meet official housing targets amid challenging conditions in the building sector.

Timothy Hibbert, head of property and building forecasting for Oxford Economics Australia, said that in a housing market such as Sydney’s, which relies heavily on the construction of large multi-unit developments, it is difficult to increase supply quickly after a downturn.

“A big apartment project takes upwards of seven years from the time the land is purchased to when residents get the keys and move in,” he said. “That means housing supply problems can become entrenched for quite some time.”

In the September quarter of 2024 only 6243 buildings were approved across Greater Sydney (seasonally adjusted), the second-lowest in 13 years.

But there has been marked improvement since – more than 8600 buildings were given the go-ahead in the December quarter, the highest in 18 months.

Rawnsley said the improvement may indicate growing confidence in the construction sector after a period of more stable building costs and steady interest rates.

“Although the December result was encouraging, more data is required to confirm that the worst is over for the supply of new housing in Sydney,” he said.

Nationally, building approvals rose by 4.5 per cent to 45,852 in the December quarter, although that was below the five-year average.

“Despite some positives, the clear trend is that building approvals are much lower than we would want them to be at a time when housing is a pivotal issue for all levels of government across the country,” Rawnsley said.

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