Australian dwelling approvals extended their slide for a third successive month, with the renewed weakness likely coming in response to the RBA's rate hiking cycle. Further declines remain in prospect, though the residential construction pipeline remains substantial.
Building Approvals — November | By the numbers
- Dwelling approvals (seasonally adjusted) fell by 9.0% month-on-month in November (vs 0% expected) to 13,898, the level down 15.1% over the year. October's intially reported fall of 6.0% was revised to -5.6%.
- House approvals declined for the third month running falling by 2.4% to 9,238 (-13.5%yr).
- Unit approvals posted a 19.9%m/m fall coming in at 4,659, a decline of 18.1% on the level from 12 months prior.
Building Approvals — November | The details
National dwelling approvals fell by 9.0% in November following declines of 8.9% and 5.6% in the prior two months. This brings the retracement in approvals to almost 41% below their early 2021 peak. The unwind of construction subsidies and other stimulus measures implemented during the pandemic have largely driven the retacement (supply constraints and surging building costs also factors) but now the effects of the RBA's rate hiking cycle and the associated fall in housing prices look to be coming into play.
House (or detached) approvals actually lifted in the months following the first RBA rate rise in May but have subsequently turned in three month-on-month declines in succession. While approvals have fallen 11.8% since August they are only 4.3% lower stretching back to May. This suggests rate rises are beginning to take hold. Since August, the largest declines have come in Western Australia (-17.5%), Queensland (-16.9%) and Victoria (-13.4%), with more moderate falls seen in South Australia (-6.2%) and New South Wales (-6.6%).
Approvals in the unit (or higher density) segment were highly volatile for much of 2022 but have shown more sustained weakness recently. November's 19.9% fall was the third decline in succession, which has seen approvals on a rolling 3-month average basis slide to their lowest level since February 2021 at just below 5,700. The available underlying estimates indicate the weakness has been broad based across the low rise, townhouse and high rise segments.
Building Approvals — November | Insights
The adjustment in building approvals to the RBA's rate hiking cycle (and to more accelerated falls in housing prices) now looks to be playing out. Although building approvals are likely to see continued declines, a record number of detached homes remains under construction and this will support residential construction activity for a while yet, particularly with supply constraints easing.
