“A fall in building approvals at the end of 2022 is the next step in what has been a very well-broadcast downturn in the housing market caused by the increase in the cash rate,” said Tom Devitt, HIA economist.
Devitt’s comments follow the release of new ABS monthly building approvals data for November, which showed a 9% decline in building approvals for the month, including a 2.4% fall in detached approvals and a 19.9% fall in multi-units.
“This puts detached approvals over the three months to November down by 12.1% on the same quarter in 2021, and multi-units down by 11.4%,” Devitt said. “Within two months of the RBA’s first interest rate hike in May 2022, leading indicators of building activity including new home sales started to decline. Investors, first-home buyers, and owner-occupiers started retreating from the housing market.”
Devitt said the data suggests builders have worked through much of the large pipeline of work that existed in May 2022, when the RBA started lifting the OCR, leading to an easing in the number of homes under construction this year.
“The full impact of the 2022 increases in the cash rate will not be observed until the second half of 2023,” Devitt said. “The depth of this downturn will be determined by the RBA’s cash rate decisions. The RBA has already undertaken the steepest hiking cycle in a generation, and it needs to hold fire on further hikes to give their actions to date time to play out. As more housing market indicators reflect the impact of cash rate increases to date, the RBA will be under increasing pressure to reverse course in the second half of this year.”
In seasonally adjusted terms, total building approvals by state were mostly down in the November quarter compared to the same period the prior year, except for South Australia which saw a +6.2% lift. Western Australia led the declines with a -27.4% drop, followed by Queensland (-16.8%), NSW (-12.0%), and Victoria (-6.6%).
In original terms, total building approvals increased in the Northern Territory (+29.0%) and Tasmania (+7.8%), while declining in the ACT (-34.8%).
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