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Over 18 months of elevated cash rates have sent shock waves across Australia’s property sector and it is not only mortgages that have been affected – residential building approvals have also taken a serious blow.
The latest monthly building approvals data from the Australian Bureau of Statistics (ABS) saw total approvals hit 14,529 for November 2023. This may be 1.6 per cent above the previous month’s total, but economists warned this remains “well below Australia’s underlying dwelling requirement.”
Building approvals for non-house dwellings, such as units and town houses, rose 6.7 per cent in November. Private house approvals, however, dropped -1.7 per cent.
HIA chief economist Tim Reardon observed that “the fall in this month’s figures sees approvals in the three months to November lower by 8.0 per cent compared to the same period in the previous year.”
In some states, the decline was even steeper: in NSW, for instance, house approvals in November 2023 were a massive -16 per cent lower than a year prior, while in the Northern Territory, house approvals dropped over -30 per cent since November 2022.
“A continued fall in the number of new homes approved indicates a slow start to the Australian government’s ambition to build 1.2 million new homes in five years starting mid-2024,” Mr Reardon said.
According to Mr Reardon, the rise in the cash rate “is the primary cause of this slowdown in approvals.”
Commonwealth Bank of Australia economist Harry Ottley stated there are “some green shoots” emerging as the trend measure of approvals continued to climb.
“The slower pace of tightening from the RBA is likely supporting approvals from very low levels,” Mr Ottley said.
“If monetary policy is eased this year, approvals can increase more materially given there remains high underlying demand for new housing amid the current shortage.”
Maree Kilroy, senior economist for Oxford Economics Australia, concurred with this view, ascribing the approval slowdown to “delays, the upward rebasing of build costs, and higher interest rates.”
This hostile economic climate has made it “a difficult landscape for getting new projects off the ground,” Ms Kilroy stated.
The latest data release was not without its high points: private attached dwelling approvals increased by 6.7 per cent thanks to major apartment developments in Melbourne and Canberra, making November the strongest result for this sector in six months.
Nevertheless, Ms Kilroy warned that “against a backdrop of strong population growth, a sustained mismatch between demand and supply for housing is locked in for the next few years at a minimum.”
She concluded: “While movement on the housing front is encouraging, planning lags and construction time frames mean it will take until the back half of the decade to see a meaningful activity boost.”
[RELATED: Building approvals bounce back in October: ABS]
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