Building approvals disappoint through February as apartment and unit permits slump to 12-year low

Australia’s chronic housing shortage showed no sign of abating through February, with just 12,520 new homes signed off for construction.

Building approvals remained sluggish through February, with softer than anticipated results indicating a continuation of the weak run of new housing construction in recent months.

Total dwellings approved, an indicator of Australia’s residential construction pipeline, slipped 1.9 per cent over the month, the Bureau of Statistics reported on Thursday, with just 12,520 new homes signed off for construction, according to the seasonally adjusted figures.

The reading was far weaker than the 3 per cent increase anticipated by economists.

While data for housing permits can be exceptionally volatile from month to month, and later subject to large revisions, home construction rates have trended sharply lower since their peak in March 2021, plunging more than 45 per cent.

The monthly building approvals were dragged down by a sharp slump in permits issued for units, apartments and townhouses. Picture: NCA NewsWire

The monthly read means just 162,751 new homes received sign-off in the 12 months to February, the lowest annual result since March 2013, and well short of the pre-pandemic 12-month rolling average of approximately 177,000.

The annual result also stands in sharp contrast with the recent surge in population growth, which soared by 618,975 over the same period.

NAB head of market economics Tapas Strickland said the surge in population growth was making the Reserve Bank’s job of taming inflation more difficult.

“This ramp up in population growth has put pressure on both rents and dwelling prices, which are challenging the return of inflation to target,” Mr Strickland said.

“More recent net arrivals data suggests population growth should ease a little, though there remains an evident shortage of housing and population growth is still strong.”

Despite the monthly decrease, the result was buoyed by an uptick in permits issued for detached dwellings, which rose 10.7 per cent to 8404.

However, more volatile approvals data for units, apartments and townhouses dived 24.9 per cent to just 3771 – its lowest reading in 12 years.

The anaemic reading for new housing permits is especially pressing given that from July 1, the government’s target to build 1.2 million well-located homes over five years begins, requiring the construction of 240,000 homes on a year-ended basis.

Alongside high interest rates, the legacy impacts of the Covid-19 pandemic, including labour and material shortages, have caused the housing market to seize up in the last 12 months, with spillover effects now evident across the construction sector and in furnishing and hardware sales.

The sluggish dwelling approvals data pointed to continued weakness in Australia’s home building pipeline. Picture: NCA NewsWire / Brenton Edwards

In a blunt assessment of the state of the housing market, Commonwealth Bank economist Belinda Allen said Australia was simply not building enough homes.

“Capacity constraints and a rapid increase in costs are plaguing the residential construction industry,” Ms Allen said.

“We are seeing the impact flow through to prices for existing homes and the rental market.”

The housing sector is being closely watched by economists as evidence that the RBA’s aggressive run of interest rate hikes to a 12-year high of 4.35 per cent is flowing through the economy and slowing consumption as intended.

While financial markets give next to zero chance that the central bank will cut interest rates at its next meeting, scheduled for May 6-7, they are fully priced for 25 basis points worth of unwinding in monetary policy by the RBA board’s September meeting.

Originally published as Building approvals disappoint through February as apartment and unit permits slump to 12-year low