This means that attached dwellings - including apartments, townhouses and semi-detached homes - dropped off in March 2022.

Specifically, total dwelling units approved fell 18.5% in March - now down 35.6% over the past year.

While private sector houses experienced a comparatively smaller decrease, new building approvals for houses have fallen 32.2% over the past year.

Overall, private sector dwellings excluding houses have dropped 41% over the past year.

Housing Industry Association economist Tom Devitt said the drop in building approvals follows the strong performance in the previous month.

"Despite the decline in March and the weak performance in January during the holidays and the Omicron outbreak, detached home approvals for the first three months of 2022 were still 9% higher than the equivalent pre-pandemic quarter," Mr Devitt said.

"This continues to reflect the strong ongoing demand for housing in the first quarter of 2022, albeit at levels below those observed over the past two years."

Mr Devitt said affordability issues, land constraints and a return of overseas migrants will help support demand for units, townhouses and apartments following the decline.

"The impact of this week’s rise in the cash rate on building approvals could take more than six months to emerge in this data set," he said. 

"The shortage of rental accommodation remains the key driver for demand for new homes in this cycle."

New home construction loans down 3.4% in the March quarter

Reflecting the drop in new building approvals, loans for the construction or purchase of new homes fell 3.4% over the past quarter according to ABS figures.

"Despite the quarterly decline, loans for new homes in the first quarter of 2022 were still up by 19.3% on the equivalent period pre-pandemic," Mr Devitt said.

"First home buyers remain active in the market, despite falling from levels observed during the HomeBuilder stimulus. Loans to first home buyers in the first quarter of 2022 were up by a third on the equivalent quarter pre-pandemic."

Owner-occupier first home buyers rose 4.2% in the March quarter, but were 32.8% lower than last year.

ABS Head of Finance and Wealth Amanda Seneviratne said the reduced first home buyer activity partly reflects an unwinding of COVID-19 related incentives.

Despite HomeBuilder winding down, incentives for first home buyers to build or buy a brand new home include the New Home Guarantee and First Home Owner Grants

The value of new housing loan commitments still rose 1.6% to $33.3 billion in March 2022, following a 3.5% fall in February, driven by investor lending.

"The value of new investor loan commitments reached a record high of $11.7 billion in March and was the key contributor to the rise in the value of new housing loan commitments," Ms Seneviratne said.

"After falling 4.7% in February, the value of new owner-occupier loan commitments rose 0.9% to $21.6 billion in March, 2.2% lower than the same time last year."

Rising investor lending not enough to boost rental supply

While the increasing number of investors in the market may mean more properties available for renters, buyers agency Atlas Property Group said this isn't enough to fix the rental crisis.

Atlas Property Group Director Lachlan Vidler said the latest ABS data shows 35.1% of mortgages are held  by investors - up from the record low of 22.9% in 2020 - but there has been multiple years with investors absent from the property market.

"One only needs to consider that out of about 2.5 million rental properties in Australia - according to the last census - there were only about 37,000 vacant in March this year," Mr Vidler said.

"To put this into perspective, there were nearly 90,000 vacant in December 2016, which was the most recent peak vacancy rate period, according to SQM Research."

The national vacancy rate hit a new record low of 1% in March, with most capital cities recording vacancy rates below this.

Specifically, Brisbane, Perth, Adelaide, Hobart, Canberra and Darwin all recorded vacancy rates below 1%.

Mr Vidler said the current rental crisis has been years in the making, with investor lending restrictions being one piece of the puzzle, as well as the potential axing of negative gearing before the previous Federal Election.

"But one of the major reasons why our rental market is so severely undersupplied is also because a huge number of investors sold their properties to owner-occupiers last year," Mr Vidler said.

"Their motivations for doing so were no doubt varied, but the potential risk of having to continue to provide accommodation for tenants during the pandemic, while receiving no rent in return, was likely a valid concern for many."

He also said investors in markets that had seen little capital growth for years made the most of the housing boom, and many of them offloaded their properties.

"With property prices softening in some locations, but rents increasing in most areas, investors are likely to continue to be active in the market, but there is long way to go before the rental crisis is going to improve," Mr Vidler said.

"New investors need to be diligent in their property and area selections, because not every part of the nation makes a sound investment location over the medium- to long-term – regardless of the current upswing in weekly rents."


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