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Building approvals continued to tank in October, but a national housing group claims that the latest figures are yet to factor in the impact of the rate hikes.
The latest data from the Australian Bureau of Statistics (ABS) showed that building approvals for detached houses and multi-units covering all states and territories fell by 6 per cent over the month of October.
Over the three-month period to October, total dwelling approvals are 9 per cent lower compared to the same quarter in 2021.
In seasonally adjusted terms, total building approvals by state were mixed. Queensland led the declines, as the Sunshine State saw total dwelling decline by 22.1 per cent over the last 12-month period to October.
This was followed by Western Australia (-20.1 per cent) and NSW (-9.4 per cent), with increases in South Australia (+18.8 per cent) and Victoria (+6 per cent).
In original terms, total building approvals doubled in the Northern Territory (+104.5 per cent), with declines in the ACT (-21.8 per cent) and Tasmania (-8.7 per cent).
Housing Industry Association (HIA) economist Tom Devitt said that despite the decline in approvals in recent months, the monthly data is yet to reflect the “adverse impact of the rate rises that commenced in May 2022”.
The Reserve Bank of Australia (RBA) kicked off its monetary policy tightening cycle in May with a 25 basis points cash rate hike to keep the surging inflation within its target band of 2 to 3 per cent.
As of its November policy meeting, the RBA board has pumped up the country’s official cash rate for the seventh consecutive month to 2.85 per cent.
With the central bank retaining its hawkish stance on its monetary policy as of its latest statement, pundits, along with major lenders, are expecting the ceiling cash rate to go high as 3.85 per cent at the end of the rate rise cycle.
“Building approvals have been sustained in recent months by the record number of home sales prior to the first increase in the cash rate that still haven’t been approved, much less commenced construction,” Mr Devitt stated.
While the expert acknowledged that financing in new homes has “fallen significantly” in recent months due to the rate hikes bringing more hip pocket pain to mortgage holders, it is yet to have a ripple effect on the number of homes gaining council approval.
“Sales in and financing of new homes have fallen significantly in recent months, but this is yet to flow through to the number of homes gaining council approval,” he said.
Mr Devitt said that the full impact of the rate rise is likely to affect approvals in 2023, when the pool of earlier sales is exhausted.
He reflected that demand for units is likely to grow as affordability becomes a pressing issue.
“Affordability constraints in the detached market, combined with tight rental markets and returning overseas migrants, students and tourists, are set to support demand for more affordable, higher-density living.
“This means the multi-units market is set to continue strengthening in the face of higher interest rates and a cooling detached market,” Mr Devitt remarked.
Data showed building approvals for detached housing fell by 2.4 per cent in October compared to the previous month — bringing the figures down 11.8 per cent compared to the same period last year.
While multi-unit approvals declined by 11.4 in October, they were still 13.9 per cent higher than pre-pandemic levels.
“A large pipeline of home-building work is sustaining employment across Australia and continues to obscure the impact of rising interest rates on demand for housing.
“The 2.75 per cent increase in the cash rate will bring this pandemic boom to an end, but this is yet to be reflected in approvals data,” concluded Mr Devitt.
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