Sydney faces housing crisis as NSW building approvals drop

Sydney is staring down the barrel of a renewed housing crisis with a perfect storm of falling prices, increased construction costs and higher financing charges.

Sydney is staring down the barrel of a renewed housing crisis as building approvals drop through the floor, but the worst is yet to come for renters and prospective homebuyers already forced out of the market.

The return of immigration after two years of closed borders combined with rental vacancies already plunging to near-record lows in Sydney point to 2023 being a “tough year” for renters and homebuyers, property industry figures say,

Making the situation worse is a chronic under supply of homes – with the latest figures from the Australian Bureau of Statistics showing an 18.8 per cent nosedive in new dwellings being approved in NSW in the month to October.

Mark Bainey, the CEO of Sydney developers Capio Property, said a “perfect storm” headlined by NSW’s planning system, bureaucracy and spiralling costs was scaring new construction away – pointing to a massive pinch point next year as supply falters to meet soaring demand.

Sydney is experiencing a chronic under supply of new homes. Picture: NCA NewsWire / Nikki Short

“A perfect storm is currently at play of falling prices, increased construction costs and higher financing charges which provides no profitable incentive to build in the current market,” he said.

“The planning system in its current form thwarts the capacity of finance-ready developers such as ourselves to deliver new housing, by simply not providing approvals in a timely manner.

“The knock on effect of this undersupply will see prices and rents for apartments continue to rise.”

Peak bodies are in agreement the cumbersome NSW planning system is to blame for the undersupply set to send property prices soaring, at a time when rental vacancy hovers at a near record 1.6 per cent according to SQM Research.

Tom Forrest, CEO of developer peak body Urban Taskforce, said the latest drop in dwelling approvals pointed to a rough 2023.

NSW Urban Taskforce CEO Tom Forrest. Picture: David Swift

“It’s going to be a tough year – which is why we need to come up with out of box solutions,” he said.

“We’ve got an extraordinary rental vacancy crisis – not just in the city of Sydney, it’s every area of NSW. It’s not like you can just flee to Tamworth or the country for cheaper rent.”

He added “we need state government to do some heavy lifting to make up for the last few years of failure” and suggested planning Minister Anthony Roberts could more frequently step in to fast track mass rezonings like he did earlier this year at Appin and Gilead in the city’s west, which will result in 19,000 new homes.

The Property Council’s acting NSW executive director Adina Cirson said the NSW planning system needed to be more proactive in reacting to change – like being more accepting of converting old office blocks into housing, with Covid-19 appearing to permanently change patterns of work and reducing the amount of time workers spend in offices.

“The problem is with the planning system is there’s so many cooks in the kitchen that no one is actually leading the charge,” she said.

“Now there’s a hybrid way of working – what we need to do is have a more strategic think about getting more people living in our cities … We need to start thinking about that precinct style of development with a higher density in the CBD.”

A spokeswoman for NSW planning Minister Anthony Roberts – the man tasked with rectifying housing affordability – said as of June 77,751 homes were under construction in the state.

“Housing our state is the NSW Government’s top priority – that‘s why we’re building a faster, simpler planning system, working with councils and others to ensure the delivery of more than 400,000 homes over the next four years to meet the demand and put downward pressure on rents and house prices,” she said.