Home approvals nudged up

According to the Australian Bureau of Statistics (ABS) July results detached dwelling approvals saw a 0.7 per cent increase (9,937 approvals), which was more than offset by a 43.5 per cent plummet in multi-unit approvals, which dropped to 3,439 approvals.

Overall, there were 13,595 dwelling approvals, which marked 17.2 per cent drop for the month, compared with 15,780 approvals over June and a 25.9 per cent annual fall.

The trend figures for total dwellings approvals across the country continued to fall (-1.5 per cent), marking 14,974 buildings approved, after recording a 2 per cent decline in June.

In addition, the value of residential building approvals fell 6.1 per cent, which totalled $6.8 billion, and new residential building approvals fell 6.9 per cent to the value of $5.8 billion.

CBA economist Stephen Wu said the rising rate environment and change of pace following the surge in building approvals after the HomeBuilder grants, have meant new approvals for private detached homes have “hovered around the 10,000/mth figure”, compared to the peak at around 14,000 in March 2021.

“The figures reflect headwinds facing both the housing market and the construction sector. Reduced household borrowing power from rising interest rates and high costs of construction are weakening demand,” Mr Wu said.

“Home price falls have only accelerated in recent months as the price side of the housing market deteriorates.

“The upshot is that residential construction will be a drag on the economy in 2023 and in turn inflation in the home building space will dissipate.”

He explained lower housing construction demand from rising interest rates is affecting the construction sector, but will also ease high inflationary costs seen during the pandemic.

“The Performance of Construction Index showed that construction activity contracted in July for the second consecutive month, with higher interest rates a key contributing factor,” Mr Wu said. 

The construction sector continues to face supply constraints, materials delays, labour shortages and high materials costs, which has contributed to a number of major construction company collapses, including the recent collapse of Queensland-based residential construction company Oracle Platinum Homes.

Senior economist at Westpac Matthew Hassan said given the immense pressure on the construction industry it was holding up.

“Despite increasing pressure from a range of negatives… total dwelling approvals managed to rise 3 per cent in Q2, defying this deteriorating backdrop,” Mr Hassan said.

While the July fall breaks this pattern, he said the detail still pointed to “surprising resilience”.

Given private detached houses – a large, stable segment – nudged up 0.7 per cent, it was a “good guide to underlying trends”, he said.

“Non high-rise approvals are very likely to see a sustained weakening in coming months,” Mr Hassan said.

“Many of the projects currently in the ‘pipeline’ are also likely to fall through. However, the downturn in dwelling construction activity is clearly coming through more slowly than the downturn in the wider housing market.”

[Related: QLD company goes into liquidation]