How far have townhome approvals fallen?

Townhome approvals across Greater Melbourne fell below 2,000 for the first time in two years in Q1 2026, with 1,987 approvals recorded for the quarter. That is the second lowest quarterly figure since Q4 2014. On a rolling 12 month basis, approvals have continued to trend downward, with 9,062 townhome dwellings approved in the year to Q1 2026.

The prior signs of stabilisation that characterised late 2025 have not held.

Where are apartment approvals tracking? 

Apartment approvals are also contracting. While individual quarterly figures can be skewed by a single large scale development, rolling annual approvals have fallen 6% to 10,372 dwellings in the year to Q1 2026, suggesting the current apartment development cycle has reached a new low point.

Prior signs of optimism in unit supply are unlikely to materialise in the near term. New tax settings have introduced considerable uncertainty, even as new off the plan dwellings retain meaningful concessions relative to established stock. Interest rate increases have pushed developers back to reassessing feasibilities, with the cash rate target returning to 4.35% as of May 2026, the restrictive settings last seen in 2024.

Will planning reforms help in the near term? 

Planning changes, including the new Mid-Rise Code, represent a genuine medium term positive for supply. However, they will take time to deliver tangible benefits.

Why is construction cost escalation the biggest risk to supply?

The greatest risk to unit dwelling supply is construction cost escalation. The Middle East conflict has driven building costs sharply higher. Diesel prices rose approximately $3.00 per litre before settling in the mid $2.00 range, while costs across plastics, metals, and asphalt have increased by double digit percentages.

The scale of escalation means that achieving feasible dollar per square metre rates will be challenging and in some cases may not be achievable. Uncertainty over the course of the global conflict has given way to near certain expectations that cost escalation will exceed baseline projections set at the end of 2025.

Want the full picture?

This article draws on findings from RPM Group’s VIC Metro Market Intelligence Report – Q1 2026. Access the complete data and market forecasts in the full report.