Australian dwelling approvals declined by 9.5% in December, more than reversing increases posted in October (8.3%) and November (0.3%). Although approvals rose by 5.3% over the final quarter of the year, their annual total for 2023 (162.2k) was the lowest in 11 years, reflecting legacy issues from the pandemic around supply constraints and rising interest rates.
Dwelling approvals came down 9.5% from the prior month to 13.1k; unit approvals unwound to 4.6k (-22.4%m/m) after rising strongly through October-November, while house approvals softened to 8.5k (-0.6%m/m). Nonetheless, approvals increased over the final quarter of the year, up 5.3% (with units +11.9% and houses +1.6%) but remained well down on the cycle highs seen in the middle of 2021.
Taking a step back, total approvals in 2023 came to 162.1k, their lowest annual outturn since 2012. Annual approvals came to their weakest since 2011 for units (60.8k) and retraced to a 10-year low for houses (101.4k).
The RBA has raised rates by 4.25ppts since May 2022 and this has been a key factor behind the slide in dwelling approvals, tightening financing conditions for home builders and adding to margin pressures following substantial cost increases for labour and materials, reflecting supply constraints. These supply constraints have been binding, with the dwelling completion rate near its lowest in 10 years as of Q3. As a result the pipeline of homes under construction has backed up significantly over the past couple of years. Working through this pipeline of backlogged homes has been the focus of home builders, with approvals and new home starts falling as a consequence.
This has all coincided with a rapid post-pandemic rebound in population growth, putting pressure on the existing housing stock. Housing prices have risen materially - up 10% in the capital cities over the year to January according to CoreLogic's report this morning (see below) - and vacancy rates have fallen to very low levels.
