Australian dwelling approvals remained weak in March and fell heavily over the first quarter of 2023. Rising interest rates, declines in housing prices and pressures in the home building sector are all playing a role.
Building Approvals — March | By the numbers
- Dwelling approvals (seasonally adjusted) were flat in March (-0.1%) at around 12.7k following a 3.9% rise in February. Approvals are down 17.3% over the year.
- House approvals declined by 2.9% to 8.4k (-15%yr), unable to extend from February's 11.1% rise.
- Unit approvals rose for the first time in 2023, up 5.7% in the month to 4.3k, the level down 21.5% on 12 months ago.
Building Approvals — March | The details
Dwelling approvals remain weak as the effects of rising interest rates, a downswing in housing prices and pressures in the construction sector weigh on the home building outlook. Although there is a record number of new homes under construction in the pipeline (105.1k in Q4), the weakness in approvals points to a sizeable reduction in activity as these homes are completed. Approvals totalled 37.6k in the March quarter, a decline of almost 20% on the previous quarter and the lowest quarterly total since Q1 2012. Quarterly approvals for both houses (24.9k) and units (12.8k) are at their lowest levels in at least a decade.
As the next charts show, dwelling approvals were weak across the board in Q1, with houses and all higher-density types at low levels.
Approvals for house alterations have remained elevated well past their surge during the Covid period and long after the end of the HomeBuilder stimulus. As this is measured by the ABS in nominal terms, it reflects labour and materials cost increases. The volume of alteration work done has been unwinding from its Covid peak in recent quarters.
Building Approvals — March | Insights
Stimulus measures during the pandemic led to a substantial increase in the housing pipeline in Australia. But capacity constraints have hampered progress in completing homes. Labour and materials costs rose sharply and this has put pressure on the sector, particularly in instances where fixed-price contracts were agreed prior to these uplifts. Insolvencies have risen of late, including a number of high-profile home builders. A downswing in housing prices has been another headwind, though that may be starting to run out of steam, with rapid population growth running up against tight supply.