The number of applications to build new homes in Warrnambool has dropped

In a sign that higher interest rates, labour issues and supply chain problems are having an impact, the number of building applications for new homes fell from 77 in last year's March quarter to 44 this quarter.

Renovation applications also dropped from 21 last March quarter to 19 this quarter.

There was a big boom in building activity in 2020-21, with 407 new homes approved.

This was double the previous year when 204 homes were given the go-ahead.

Warrnambool City Council's city growth director Luke Coughlan said there had been a return to residential building activity more in line with pre-COVID-19 pandemic levels.

"The drop is not unexpected taking into account the rise in interest rates along with labour and supply chain issues," he told The Standard this week.

The statistics back up comments from city real estate agents who said they were starting to see some blocks of land being on-sold with the cost of construction and long waits in the building industry having an impact.

Warrnambool builder Stephen O'Keefe said he had noticed there were fewer inquiries about new home projects.

"It doesn't worry us. It means there is time for us to catch up a little bit," he said.

Mr O'Keefe said with inflation running at seven or eight per cent there were difficulties.

"Things are a lot more available now and we're fairly confident things will be able to stabilise," he said.

Mr O'Keefe said there was still a shortage of tradesmen and workers in the south-west area.

"We're looking for additional staff ourselves and that's the challenge," he said.

Mr O'Keefe said other builders had similar challenges.

"It's not just carpenters, it's across the board," he said.

"A lot of our sub-trades are saying the same thing."

Mr O'Keefe said he'd had a few inquiries about renovations but it was a market he was moving away from.

He said they had a lot of large-scale new homes to build.

"We're pretty lucky in Warrnambool. We don't seem to get the extremes," Mr O'Keefe said.

When the industry started to turn, Warrnambool tended to stay "fairly buoyant", he said.

"I feel encouraged about the next few years."

Project builders may start to struggle with the first homebuyer's market also feeling the pinch due to rising living costs.

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