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The latest monthly building approvals data released by the Australian Bureau of Statistics (ABS) revealed a 9 per cent drop in the number of dwelling approvals in the month of November, which included a 2.4 per cent fall in detached approvals and a 19.9 per cent fall in multi-units.
HIA economist Tom Devitt stated this decline of building approvals during the end of 2022 is the “next step in what has been a very well broadcast downturn in the housing market caused by the increase in the cash rate”.
Mr Devitt added that within the first two months of the Reserve Bank of Australia’s (RBA) interest rate hike, lending indicators of building activity including new home sales began to decrease.
“Investors, first home buyers and owner-occupiers started retreating from the housing market,” Mr Devitt stated
By state, total building approvals had mostly declined during the three months to November 2022 when compared to the same period in 2021 in seasonally adjusted terms.
These declines were led by Western Australia with a 24.4 per cent drop, followed by Queensland (16.8 per cent), New South Wales (12 per cent) and Victoria reporting a 6.6 per cent drop. South Australia, however, saw an increase of 6.2 per cent in building approvals.
Northern Territory and Tasmania saw increases in building approvals in original terms, at 29 per cent and 7.8 per cent, respectively, while the Australian Capital Territory reported a fall of 34.8 per cent.
Mr Devitt stated the ABS data suggested that builders have worked through most of the pipeline of work which existed in May 2022, around the time the RBA began increasing the cash rate.
He further suggested that this would result in a slowdown in the number of homes under construction during this year.
“The full impact of the 2022 increases in the cash rate will not be observed until the second half of 2023.
“The depth of this downturn will be determined by the RBA’s cash rate decisions.
“The RBA has already undertaken the steepest hiking cycle in a generation and it needs to hold fire on further hikes to give their actions to date time to play out.
“As more housing market indicators reflect the impact of cash rate increases to date, the RBA will be under increasing pressure to reverse course in the second half of this year,” Mr Devitt concluded.
The RBA made its eighth consecutive rate hike on 6 December 2022 bringing the total cash rate to 3.1 per cent, the highest level seen since 2012.
[RELATED: Dwelling approvals fell 9% in November: ABS data]
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