Australia’s home building industry has received further encouraging news as new data shows that housing starts have reached their highest level in three and a half years.

But activity levels remain below those which are needed to achieve national housing targets.

The Australian Bureau of Statistics has released the September quarter data for building activity.

According to the report, the seasonally adjusted number of dwelling commencements which took place around the country increased by 6.6 percent during the quarter to reach 48,778.

This represents the highest number of starts since the March quarter of 2022.

At this level, commencement numbers are almost 30 percent (28.7 percent) above levels that were recorded at the bottom of the cycle in the September quarter of 2023.

Compared with the same quarter one year earlier in September 2024, year-on-year quarterly commencement numbers were up by 11.6 percent.

Commencements are strengthening across both detached housing and multi-residential building (units, townhouses, apartments etc.) (see chart).

In terms of locations (major states only), medium sized states such as Western Australia, South Australia and Queensland continue to lead the way (see chart).

However, commencement numbers have also begun to rise from a subdued base in New South Wales and Victoria.

Compared with the nine months to December 2024, seasonally adjusted commencements over the first nine months of last year were up by 9.1 percent and 10.8 percent in these states respectively.

The latest data comes as the Australia has experienced a recovery in new home building activity over the past two years.

Commencement numbers have been on an upward trend since since the bottom of the cycle in the September quarter of 2023 as the previous cycle of rising interest rates reached its peak.

Initially, the recovery was focused on detached housing and was concentrated in Western Australia, South Australia and Queensland.

Since the beginning of last year, however, it has broadened to include the multi-residential sector and has spread to New South Wales and Victoria.

The recovery was spurred on by three interest rate reductions last year. It is being further supported by strong population growth, low rental vacancy rates, rising house prices and an underlying shortage of dwellings.

The data also comes as building approvals have continued on a strong upward trend over recent months.

This means that commencement numbers are likely to increase further in coming quarters.

81,026 homes behind target

However, the data shows that Australia is now more than 80,000 dwellings behind its target of completing 1.2 million new homes over the five years to 1 July 2029 as established under the National Housing Accord.

The end of the September quarter last year marked the quarter-way mark of the Accord period.

To be on target to reach the 1.2 million goal, the nation would need to have completed 300,0000 homes by now.

Thus far, however, only 218,974 new homes have been delivered.

Furthermore, quarterly commencement numbers remain well below the 60,000 homes which are needed each quarter over the Accord period in order for the target to be met.

Not surprisingly, hopes of reaching the target are fading.

In its Construction Market Report released in November, Australian Construction Industry Forum forecast that Australia will build only 925,000 homes over the Accord period.

Should this occur, the nation will miss its Accord target by 275,000 homes.

Maurice Tapang, Senior Economist at Housing Industry Association, welcomed the latest data.

But he warned that commencement numbers remain below those which are needed to achieve housing targets.

“Lower interest rates have seen the volume of new homes commencing construction increase, but they still remain well below the government’s target,” Tapang said.

“The volume of home commencements remains below the 240,000 new homes per annum needed to build to the Australian Government’s target of 1.2 million homes over five years. They also remain below the average volume commenced over the past decade.

“These are positive signs that confirm our expectation that the number of homes commencing construction will see steady, not explosive, growth over the next couple of years.

“This growth is expected to come from a resurgence in apartment construction. Apartment construction remains well below the volume commencing construction a decade ago and is one of the keys to increasing supply.

“In order to increase the supply of homes, governments need to help lower the cost of delivering new homes to market.

“Demand is not the challenge. Delivery is. Land supply, infrastructure timing, planning bottlenecks and workforce capacity will shape the 2026 experience more than interest rates.”

Master Builders Australia CEO Denita Warn expressed similar sentiments.

“We are on record warning that the Government may again fall short for a second year in a row on their housing targets. No one wants to see that, but it is close to becoming a reality…” Wawn said.

“… Looking ahead, productivity across the economy must be improved. To have any chance of further turning this around, building and construction industry productivity needs to recover to where it was a decade ago.

“This is why this year and the next federal budget is so important; while the government must heed current economic conditions and adopt policy measures to respond to that, the delivery of not only the Housing Accord target but an unprecedented infrastructure pipeline must be supported by targeted budgetary measures to improve housing affordability and a radical red tape reduction agenda.

“We are an optimistic country, and the latest ABS building activity figures are promising however we must do more to ensure the aspirational becomes the achievable.”

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