Australian dwelling approvals continue to unwind from record levels earlier in the year on the withdrawal of construction stimulus. Approvals saw their sharpest quarterly fall in nearly 5 years but were still at much higher levels than prevailed prior to the pandemic. With the stimulus measures pulling approvals forward, there is a very elevated volume of work coming down the pipeline.
Building Approvals — September | By the numbers
- Dwelling approvals (seasonally adjusted) fell by more than expected in September, down 4.3%m/m to 18,090 against a forecast decline of 2%. The ABS revised its estimate of approvals in August higher, adjusting the previously reported rise of 6.8% up to 7.6%. Annual growth in approvals slowed to 12.8% from 32.5%.
- House approvals declined by 16.1% to 10,275 (prior: 4.3%m/m), with annual growth slipping into contraction (-3.5%) for the first time since June 2020.
- Unit approvals lifted by 17.4% on the month to 7,815 (prior: 14.4%m/m), leaving annual growth a little slower at 44.9% from 49.1%.
Building Approvals — September | The details
The end of construction stimulus from the federal government's HomeBuilder scheme continues to see dwelling approvals unwind after reaching a record high level earlier in the year. The HomeBuilder scheme closed to new applicants in mid-April. In September, dwelling approvals were down 4.3%, as house approvals fell by 16.1%. But a 17.4% rise in unit approvals moderated the headline fall. For Q3, dwelling approvals were down by 12.4% on the previous quarter, for its largest quarterly decline in nearly 5 years. Approvals at the headline level are down 23.1% on March's record high.
However, even with the effects of the HomeBuilder scheme unwinding, dwelling approvals were around 55.5k for the quarter, well above the levels seen prior to the pandemic. House approvals contracted by 18.3% in Q3 but were still very elevated at 34.3k over the period. Against this broader decline, unit approvals were broadly flat in Q3 (-0.3%), with the HomeBuilder grants targeted at the detached segment.
These trends can be seen more clearly in the disaggregated data. As house approvals have declined from record highs over recent months, higher density approvals have been rising, but note the data for the latter are not seasonally adjusted by the ABS. Approvals for both high rise and townhouse developments have risen off their pandemic-driven lows reached earlier in the year.
Residential alteration approvals, which qualified for the HomeBuilder grants, are in the process of unwinding from record levels. However, they recorded an outsized decline in September of -20%m/m, likely associated with the temporary suspension of activity in the construction sector amid the Sydney lockdown, restricting the ability for people to plan renovations.
At the state level, approvals continue to pullback reflecting the end of the HomeBuilder scheme. This has been sharpest in the states outside New South Wales and Victoria. Volatility associated with lockdowns is impacting the major two states.
Approvals in the non-residential segment were lower in September (-11.3%) and over the quarter (-8.4%) and appear to have weakened in response to the setback with the pandemic from the middle of the year.
This weakness looks to be centred in both commercial (including retail, wholesale and transport sectors) and industrial approvals.
Building Approvals — September | Insights
While dwelling approvals are on the decline, the stimulus measures had the effect of bringing demand forward and elevating the level of work in the pipeline. This should support residential construction activity through much of the next year, though capacity constraints and rising costs are headwinds that could slow the pace at which the sector can work through it.
