Home approvals slide amid cooling market

Approvals to build new homes dropped by an unexpectedly large 6 per cent in October, a second straight heavy monthly fall.

Across Australia, the drop in total dwelling approvals was led by 19 per cent falls in NSW and Queensland, and an 11 per cent drop in Tasmania. Picture: iStock

Approvals to build new homes dropped by an unexpectedly large 6 per cent in October, a second straight heavy monthly fall amid a cooling housing market and intense ­capacity constraints and soaring costs.

There were 15,382 approvals in October, including successful applications to build 9430 stand-alone houses (down 2.2 per cent on September) and 5781 multi-unit dwellings (down 11 per cent), seasonally adjusted figures from the Australian Bureau of Statistics showed.

Westpac economist Ryan Wells said “it looks as though the downtrend in dwelling approvals is beginning to crystallise, responding to the numerous headwinds facing the sector and the broader economy”.

Across Australia, the drop in total dwelling approvals was led by 19 per cent falls in NSW and Queensland, and an 11 per cent drop in Tasmania.

This was offset by an 18 per cent increase in total dwelling approvals in South Australia, and 6 per cent increases in Victoria and Western Australia.

Approvals to construct stand-alone houses in the first 10 months of 2022 reached 97,221, which was more than 20 per cent down on this time last year, when the HomeBuilder subsidy and the record low loan rates ­supercharged the demand for building and renovating.

CBA senior economist Belinda Allen said the industry was working through a HomeBuilder hangover, which, outside the GST, included coping with the highest building cost inflation since the late 1980s.

“If we are right and rates peak soon – and the inflation data today supports that – we are still another year or year and a half off a turn in the house building cycle,” Ms Allen said.

Separate ABS figures showed residential construction work done in the September quarter – adjusted for inflation – was nearly 6 per cent down on a year earlier, with stand-alone house construction almost 16 per cent lower. Renovation volumes were 10 per cent lower in the quarter versus the same quarter in 2021.

“The pipeline of work is still high, but there are certainly some capacity constraints and the question is whether it all gets done,” Ms Allen said. “Both (renovation and new building volumes) are showing the impact of the end of HomeBuilder, and we need to ride the interest rate hiking cycle before you see the underlying factors such as higher immigration drive a pick-up in home building, but that’s probably a late 2023 and 2024 story.”

With home-building cost inflation running at 20 per cent, Master Builders Association chief executive Denita Wawn said “governments at a state and territory level must double-down on efforts to address issues that … frustrate the industry”.