The charts that reveal the extent of Sydney’s construction bottleneck

The number of new homes in Sydney that have been approved but not started has climbed to a five-year high as construction bottlenecks aggravate the city’s housing supply crunch.

Despite strong population growth and persistent claims Sydney is in the grip of an accommodation crisis, the backlog of unstarted dwellings jumped by 18 per cent to more than 12,000 in the year to June.

Analysis by KPMG shows nearly 10,000 – or 82 per cent – of the stalled homes are townhouses and apartments.

There is normally a lag between when housing is approved and building begins, but Sydney has an unusually high number in this category as elevated construction costs, labour shortages, higher interest rates and business insolvencies hinder starts.

KPMG urban economist Terry Rawnsley said the high number of apartments approved but not started underscored the financial challenges facing high-density developments in Sydney.

“The construction sector crunch in NSW has been more acute than any other state, driven largely by construction costs increases and rising interest rates,” he said.

Sydney has much more multi-unit housing than other capitals with 45 per cent of dwellings being townhouses or apartments, compared with about 30 per cent in Melbourne.

“The Sydney market is much more geared towards higher density housing, but that’s the sector where many major developments don’t stack up at the moment,” Rawnsley said. “So we’ve got this pool of zombie projects just waiting.”

The residential construction backlog is also growing beyond the metropolitan area; the number of homes approved but not yet started in NSW regions outside Sydney jumped 47 per cent in the year to June to 4972.

Planning Minister Paul Scully said NSW was exploring the introduction of a government guarantee program to help the construction industry get finance to deliver more new homes.

“We are reforming the planning system to encourage more proposals and making it easier for projects to get under way more quickly,” he said. “We encourage the private sector to close the gap between approval and construction and do their part to help confront the housing crisis.”

Sydney University housing expert Peter Phibbs said the spike in interest rates since May 2022 combined with surging construction costs had caused a “once-in-50-year trough” for Sydney’s home-building sector.

“It’s pretty hard to combat that with the same old policies,” he said.

Another factor hampering the supply of new homes in NSW is the closure of building firms; the number of construction companies entering insolvency in the state has tripled since 2022.

“This has undoubtedly delayed many housing projects,” Rawnsley said.

The Urban Development Institute of Australia estimates annual apartment starts in NSW are now 72 per cent lower than at the last peak in 2016.

Lobby group Urban Taskforce says the annualised rate of approvals for new multi-unit dwellings in NSW fell to a 10-year low of 19,843 in August, 25 per cent lower than the figure in August 2022.

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