Australian dwelling approvals fell by 17.2% in July, a much larger fall than expected due to weakness in capital city high-rise approvals. Despite headwinds to home building from capacity constraints, rising interest rates and falling housing prices, detached approvals remain resilient.
Building Approvals — July | By the numbers
- Dwelling approvals (seasonally adjusted) declined by 17.2% over the month in July (vs -3% expected, prior -0.6%m/m) to 13,595. Over the year, approvals have fallen by 25.9%.
- House approvals lifted by 1%m/m to 10,044 but are 17.2% lower than a year ago
- Unit approvals declined sharply by 45.2% in the month to post at 3,551, its lowest monthly total since the start of 2012, and down 42.9% over the year.
Building Approvals — July | The details
National dwelling approvals saw an outsized fall of 17.2% in July as approvals in the higher-density segment declined to their lowest level since January 2012. House approvals posted consecutive monthly gains for the first time since February-March 2021 with a 1% rise in July coming on the back of June's 1.4% gain. So far in 2022, house approvals have been fairly stable averaging just below 10,000 per month, broadly in line with the peaks of the last cycle before the pandemic.
The detailed data indicated the high-rise segment was the driver of the fall in unit approvals. The month-to-month volatility can be large, but using a 3-month total the chart below shows high-rise approvals (black line) have been on a downward trend since the end of 2021.
Much of that weakness can be attributed to declining approvals in Sydney and Melbourne. The 3-month total for Sydney unit approvals is at its lowest since late 2020 while Melbourne is at lows going back to early 2021. Constraints in the construction sector, falling property prices in these markets, rising interest rates and low migration flows could all be contributing factors.
That said, all of the aforementioned factors are relevant yet house approvals in Sydney have held up and have been rising in Melbourne. The pandemic inspired a preference shift away from higher-density living to detached homes and the respective levels of approvals might suggest this is continuing to play out.
The desire for more space—with this demand earlier boosted by the HomeBuilder stimulus—continues to support renovation activity. Approvals for alteration work to existing homes remains at very elevated levels, though the chart below is partly boosted by inflationary effects on labour and materials costs.
Building Approvals — July | Insights
House approvals have retraced from their peaks reached in early 2021, boosted by the effects from the HomeBuilder stimulus, low interest rates and rising housing prices. Despite significant constraints in home building and the reversal of stimulus, monthly approvals are still running well above the levels seen before the pandemic. Weakness in higher density approvals may be reflecting the preference shift towards detached housing by Australians.
