Australian dwelling approvals were down sharply to start 2022 falling by 27.6% in January. The magnitude of the fall was likely accentuated by holiday and Covid disruptions but was consistent with the established trend down from stimulus-driven peaks.
Building Approvals — January | By the numbers
- National dwelling approvals (seasonally adjusted) fell by 27.6% in the month of January to 12,916; this was against expectations for a 3% decline. December approvals were revised higher, from 8.2% to 9.8%. Approvals over the year are down by 24.1%.
- House approvals declined by 17.3% to 8,872 after coming in flat in the month prior (revised from -1.4%). This left house approvals 29.2% lower over the year.
- Unit approvals more than unwound December's rise (28.7%), falling by 43.6% to 4,045. Annual growth swung from 25.3% to -9.7%.
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Building Approvals — January | The details
Dwelling approvals fell sharply in January (-27.9%), with the magnitude of the fall likely accentuated by seasonal disruptions over the summer holiday period, while the Omicron outbreak may have also caused problems in the processing of approvals. This saw dwelling approvals fall to around the lows seen during the depths of the initial Covid lockdown, which was prior to the introduction of construction stimulus measures. Both house (-17.3%m/m) and unit approvals (-43.6%m/m) were off heavily in January and around their lows for the cycle.
Smoothing out January's volatility by using rolling 3-month totals, the charts below show clearly that approvals are on a downward trajectory, unwinding from their stimulus-driven peaks reached around the middle of 2021. The unwind has been spread across the detached segment and in the higher-density categories. The earlier surge in approvals has driven a very large pipeline of residential construction work, with much of it still to be worked through. In that context and with the HomeBuilder scheme having been wound up, approvals have retraced lower.
Despite the closure of the HomeBuilder stimulus to new applicants, residential alteration approvals have remained well elevated on their pre-pandemic levels. Alteration approvals were down by around 10% to start 2022, but renovations remain in demand with many Australians keen to increase the size and quality of their house: a shift brought on by the pandemic and supported by households with plenty of excess savings. Rising housing prices and tightening rental markets have also been tailwinds for alterations.
State approvals were well down on the prior month, with large double digit declines in New South Wales, Victoria, South Australia, Western Australia and Tasmania. Queensland went against the trend coming in broadly flat in January (0.5%). As with national approvals, the states are adjusting to the withdrawal of HomeBuilder (with additional stimulus measures also being implemented by state governments) and the existing pipelines.
Building Approvals — January | Insights
Aside from the unwind of stimulus, yesterday's national accounts showed residential construction activity lost momentum over the second half of 2021, with materials and labour shortages the headwinds. This could also be factoring in to the retracement in approvals, particularly if project timelines are being pushed out and with uncertainty over the outlook for house prices approaching a move higher in official interest rates.
