Despite rising in February, Australian dwelling approvals remain at low levels reflecting the interest sensitivity of the home building sector to the RBA's rate hiking cycle. Headline approvals in February were around levels last seen more than a decade ago.
Building Approvals — February | By the numbers
- Dwelling approvals (seasonally adjusted) lifted by 4% in February to 12,661 coming off a slump to open 2023 (-27.1%). Approvals are down 31.1% on a year ago and are around levels last seen in 2012.
- House approvals posted an 11.1% rise (8,623) - their strongest gain in 12 months - but only after falling heavily in January (-13.3%), with the level down 13.6% over the year.
- Unit approvals declined by 8.4% to 4,038, which followed a sharp fall in January (-43.1%), leaving approvals down 51.9% over the year.
Building Approvals — February | The details
The weakness in dwelling approvals seen over the final quarter of 2022 has extended into the new year reflecting the RBA's tightening cycle taking hold in the home building sector. House approvals on a 3-month average basis are currently around the levels seen during the downturn before the Covid crisis, while unit (or higher-density) approvals are on the weaker side of their range from the past few years.
House approvals across the states have fully retraced their surge in response to Covid stimulus measures (including construction subsidies and interest rate cuts). As alluded to above, the home building sector was in a downturn ahead of the pandemic, so the retracement has seen approvals returning to weak levels.
In the higher-density segment, the recent weakness looks to be driven by both the high-rise and townhouse categories.
In the alterations segment, the value of work approved remained at an elevated level in February ($1.1bn); however, much of that now looks to reflect the higher costs of materials and labour; the national accounts for Q4 reported alteration work (in volume terms) declined into year-end.
Building Approvals — February | Insights
Dwelling approvals remain on the slide with rising interest rates tightening financial conditions substantially. Today's housing finance release reported that the number of loans written for new housing construction fell to a record low in February (see here). The pipeline of houses under construction remains substantial, but the pressures from the cost rises associated with labour and materials over the past couple of years have clearly had an impact on the sector.