Australian dwelling approvals declined by almost 6% in September but were down only modestly during a volatile third quarter. The weakness in approvals in Q3 was driven by the higher-density segment as house approvals advanced. Further declines in approvals are likely as the construction sector responds to capacity and cost pressure, declining housing prices and rising interest rates.
Building Approvals — September | By the numbers
- Dwelling approvals (seasonally adjusted) declined by 5.8% in September to 16,455; markets anticipated a larger fall of 10% following August's 23.1% rebound (revised from 28.1%). 12-month approvals are tracking at -13%.
- House approvals saw their largest month-on-month fall since the start of the year down 7.5% to 9,721 (-10.4%yr), though that was after a strong rise in August (4.5% revised from 3.7%).
- Unit approvals declined modestly by 3.1%m/m to 6,734 to be down by 16.6% over the year.
Building Approvals — September | The details
Building approvals have been highly volatile over recent months, ending up contracting by 1.9% over the September quarter. House approvals lifted strongly in July (1.1%) and August (4.5%) but then fell sharply in September (-7.5%), overall rising by 2% in Q3. This was a similar gain to that posted in Q2 at 2.2%. Approvals in the unit or higher-density segment swung from a large fall in July (-39.2%) to rebound strongly in August (68.8%) before moving lower again in September (-3.1%).This left unit approvals down by 6.3% in the quarter.
The state estimates show house approvals advanced in Q3 in New South Wales (2.1%), Victoria (3.9%) and South Australia (10.3%). As the chart, below, shows, approvals across the states are well down from their highs reached around the middle of 2021 after running up in response to the raft of Covid stimulus measures.
In the alterations segment, approvals showed no signs of slowing, pushing higher over the quarter (1.9%). That is partly driven by elevated materials and labour costs, but demand for alterations is clearly very strong and has held up long after the HomeBuilder subsidy wound down.
Smoothing out the volatility, higher-density approvals have been running around the 6,000 level on a 3-month average for much of 2022. Townhouse approvals have been trending lower while high-rise approvals have been tracking at relatively low levels.
In the non-residential space, the value of approvals declined by almost 12% in Q3, pulling back after gains of 5.2% in Q1 and 6.5% in Q2. Beneath the headline results, some encouraging signs have emerged. notably for commercial and education, health and reaction facilities.
Building Approvals — September | Insights
Building approvals have retraced from their stimulus-driven highs in 2021 and are settling towards more sustainable levels. That said, capacity and cost pressures in the construction sector, declining housing prices and rising interest rates shape as likely to drive approvals lower over the coming quarters.