The Australian Bureau of Statistics’ January report on monthly building approvals indicates that building approvals are at their lowest level in a decade.
The Housing Institute of Australia’s (HIA) Senior Economist Tom Devitt attributes the decline to interest rate increases.
“Both detached house and multi-unit approvals in January declined by 13.5 percent and 43.7 percent respectively,” he says.
“While multi-unit approvals can be volatile from month-to-month, the continuing declines in the detached sector are reflective of the RBA’s rate increases from last year. The last time detached house approvals were at these low levels was also the last time the RBA overshot with increases in the cash rate, which was in June 2012.
“This will not be the end of the decline in approvals. The adverse impact of last year’s cash rate increases is still to fully flow through to the official data.”
Building approvals were down in nearly all states and territories, led by New South Wales (-49.0 percent), Victoria (-38.6 percent), Tasmania (-31.7 percent), Western Australia (-7.9 percent) and South Australia (-6.5 percent). Seasonally adjusted, Queensland was the only state to see approvals increase, up by 25.6 percent. In original terms, total building approvals fell in the Australian Capital Territory (-57.5 percent) and the Northern Territory (-51.1 percent).
Devitt believes the cash rate is having a major effect on the supply chain.
“The higher cash rate is compounding the adverse impact of the rising cost of materials, labour and land as well as the increased costs of compliance with the building code. There remains a large volume of work underway on the ground that will be completed in 2023 and this will keep unemployment in the national economy exceptionally low until early 2024.
“If the RBA continues to raise rates, they do risk a longer and deeper slowdown in economic growth than is necessary in this cycle.”
