High rates hurting approvals: HIA

The latest data on Building Approvals released by the Australian Bureau of Statistics (ABS) has found that the total number of dwellings approved in September 2023 fell 4.6 per cent to 13,144 from the month prior after a rise of 8.1 per cent.

According to the ABS, the seasonally adjusted estimate for private sector house approvals fell 4.6 per cent after a 7.2 per cent rise in August, while private sector dwellings (excluding houses) fell by 5.1 per cent following a 10.1 per cent rise the month before.

Housing Industry Association (HIA) senior economist Tom Devitt said the full impact of the Reserve Bank of Australia’s (RBA) rate hikes “continues to hurt households” as the “volume of new house approvals remains around its lowest level in a decade”.

“The number of new houses approved in September fell by 4.0 per cent for the month. This leaves approvals of new houses in the last three months 13.9 per cent lower than the same quarter last year,” Mr Devitt said.

“Building approvals continue to be weighed down by the fastest increase in interest rates in a generation.”

Mr Devitt suggested that the perspective from commentators predicting a rate hike on 7 November due to inflation figures “fails to appreciate that leading indicators such as building approvals are only now starting to reflect last year’s rate hikes”.

“Further declines are expected as the full impact of this year’s rate hikes flow through to households,” Mr Devitt said.

“These low approvals figures will produce a decade low volume of new housing starts in 2024 and it will be even longer before this slowing in activity emerges in lagged indicators such as unemployment and inflation.”

Declines in Western Australia (11 per cent), NSW (10.5 per cent), and Victoria (8.9 per cent) drove down total dwelling approvals, while Queensland (34.6 per cent), Tasmania (18.3 per cent) and South Australia (5.1 per cent) all recorded rises.

Private sector house approvals also fell in Western Australia (12.7 per cent), Victoria (9 per cent) and South Australia (2.6 per cent), however, the rises in NSW (1.1 per cent) and Queensland (0.7 per cent) were not enough to offset the decrease overall, according to the ABS.

Furthermore, the value of total building approvals fell by 4.9 per cent, with the value of total residential building down by 2.9 per cent that was comprised of a 3.6 per cent decline in new residential building and a 0.7 per cent increase in additions and alterations.

Commonwealth Bank of Australia (CBA) economist Harry Ottley said higher interest rates are “currently one of the disincentives for developers” resulting in weak multi-unit approvals.

“Strong migration, higher rental yields and monetary policy easing next year should stimulate activity, but apartment construction operates with significant lags,” Mr Ottley said.

“There remains a significant pipeline of work to be done for multi-unit dwellings, but labour shortages and profitability challenges in the construction industry is causing even further delays in supply coming online.”

Westpac economist Ryan Wells said the September update “showcased a moderately soft set of results” during a period of emerging underlying stability, “albeit at low levels by historical standards”.

“That said, the outlook for dwelling approvals remains mixed – just as wider housing markets are beneftting from rapid population growth, legacy issues around elevated construction costs and capacity constraints remain a drag on building activity,” Mr Wells added.

[RELATED: Building approvals bounced back in August]