Building approvals slump to decade low as the RBA’s interest rate hikes rip through the economy

Building approvals have slumped to their lowest level in a decade and the supply of new housing is expected to dry up even further in coming months.

Building approvals have slumped to their lowest level in a decade and the supply of new housing is expected to dry up even further in coming months as the Reserve Bank’s aggressive interest rate hikes tear through the economy.

The total number of dwellings slumped 3.7 per cent to 12,611 in March. A fall in private sector housing fuelled the decline, with approvals diving 21.5 per cent compared with March 2022, according to the Australian Bureau of Statistics.

On a seasonally adjusted basis, total approvals fell 0.1 per cent in the month and 17.3 per cent annualised.

The past year has been tough on the construction industry, with many builders experiencing a profitless boom, sparked largely from the former Morrison government’s home builder stimulus. Tradesmen have been locked into fixed-priced contracts, unable to pass on soaring costs amid an industry-wide supply chain crunch and persistent strong demand.

Even bigger companies have battled to stay afloat. Porter Davis Homes Group – the nation’s 12th biggest home builder – collapsed in March, leaving at least 1700 homes unfinished across Victoria and Queensland.

Now interest rates are wreaking havoc on the industry, forcing many Australians to pull back on plans to build their dream homes.

HIA senior economist Tom Devitt said the builders were yet to feel the full effect of the RBA’s 11 interest rate hikes since May last year.

“This continues the long-lagged response of Australian homebuyers to the RBA’s interest rate hiking cycle, with further declines expected in the coming months,” Mr Devitt said.

“The adverse impact of last year’s cash rate increases is still to fully flow through to the official data. Further cash rate increases this year will have only added further weight to these declines.”

Mr Devitt warned the slow down in supply threatened to worsen housing affordability and access to rental accommodation.

“These disappointing approvals numbers are occurring as population growth surges with the return of overseas migrants, students and tourists.

“This imbalance will see the affordability and rental crisis deteriorate further.”

Master Builders Australia chief economist Shane Garrett said: “Concerningly, the inflow of new work remains significantly lower compared with a year ago, having retreated by 17.3 per cent.”

Approvals for private sector houses fell 4 per cent in NSW, while Queensland and Victoria dived 3.9 and 3.8 per cent respectively. South Australia eased 0.1 per cent, while Western Australia was the only state to record a gain, vaulting 8.7 per cent.

The total value of new residential building plunged 6.4 per cent to $5.6bn. Renovations were also hit hard, dropping 7.4 per cent to $942m.

Master Builders chief executive Denita Wawn said while there was “no silver bullet” to fix Australia’s housing crisis, she called on Jim Chalmers to introduce “targeted measures” when he releases the federal budget on Tuesday.

“The government has an opportunity in tomorrow’s budget to be fiscally responsible and target measures to alleviate the housing crisis,” Ms Wawn said.

“The budget needs to ensure that carefully targeted spending boosts productivity for business and allows for more favourable outcomes when it comes to the cost, quality and quantity of building and construction output.

“We hope the Senate reviews today’s data as they debate the Housing Australia Future Fund this week. Parliament has an opportunity to send the right signal and kickstart a vital piece of housing reform.”