Australian dwelling approvals fell by a larger-than-expected 6% in October following sizeable declines in recent months. The interest sensitivity of the housing sector and capacity constraints in the construction sector are weighing on approvals.
Building Approvals — October | By the numbers
- Dwelling approvals (seasonally adjusted) declined by 6.0% in October to 15,382 against -2% expected. Approvals were revised to show a larger fall of 8.1% in September compared to -5.8% initially reported. Annual approvals growth is at -6.4% from -12.9%.
- House approvals were 2.4% lower at 9,502 coming on the back of September's 8.2% fall. Annual growth slid to -11.6% from -9.9%.
- Unit approvals declined sharply by 11.3% to 5,880 (prior: -8.0%), though annual growth lifted to 3.5% from -17%.
Building Approvals — October | The details
Building approvals weakened further falling by 6% month-on-month in October — their third decline in the past 4 months — as the RBA's rate hiking cycle gained further traction in the interest-sensitive housing sector. Approvals floored just below 13k during the pandemic in mid-2020 but went on to surge to a peak above 23k in March 2021 as stimulus measures boosted the construction pipeline. The retracement that has followed has left approvals averaging around 16k over the past 12 months.
House (or detached) approvals had been trending gently upwards in 2022; however, that has given way following notable declines in September (-8.2%) and now October (-2.4%). The RBA's rate hiking cycle, housing prices falling from their Covid peaks and the substantial number of houses in the construction pipeline are all factors playing their part.
Approvals in the unit (or higher-density segment) have been very volatile this year in the monthly reports. Averaging out the available data indicates approvals in the segment are tracking sideways amid diverging trends with high-rise approvals grinding back to pre-Covid levels as townhouse approvals have declined.
Alteration approvals have been sustained at very elevated levels despite the HomeBuilder stimulus having concluded to new applicants well over a year ago. The desire of homeowners for more space is looking to be sticky even as the pandemic continues to dissipate and despite builders passing through higher materials and labour costs.
Non-residential approvals have been showing encouraging trends, consistent with the rise in output seen in today's construction activity data (see here). Investment by firms in offices and facilities is rebounding after projects were shelved during the Covid period.
Building Approvals — October | Insights
The declines of recent months suggest the renewed weakness in dwelling approvals is coming in response to the headwinds from RBA rate hikes, falling housing prices and capacity constraints in the construction sector. Further declines remain in prospect as a record number of new homes remain under construction.
