Dwelling approvals plunge in July

30 August 2022

Summary: Home approval numbers down 17.2% in July, below expectations; “sudden stop” to high-rise activity, other segments holding up “reasonably well; rate rises placing pressure on borrowing capacity of developers, individual homebuilders; house approvals up 1.0%, apartments down 45.2%; non-residential approvals down 22.6% in dollar terms, residential alterations down 1.3%.

Building approvals for dwellings, that is apartments and houses, headed south after mid-2018. As an indicator of investor confidence, falling approvals had presented a worrying signal, not just for the building sector but for the overall economy. However, approval figures from late-2019 and the early months of 2020 painted a picture of a recovery taking place, even as late as April of that year. Subsequent months’ figures then trended sharply upwards before falling back in 2021 and the first half of 2022.

The Australian Bureau of Statistics has released the latest figures from July and total residential approvals plunged by 17.2% on a seasonally-adjusted basis. The fall over the month was significantly greater than the 3.0% decrease which had been generally expected as well as June’s -0.6%. Total approvals fell by 25.9% on an annual basis, below the previous month’s figure of -17.2%. Monthly growth rates are often volatile.

“Overall, the July report suggests high-rise activity is seeing a sudden stop but that other segments are still holding up reasonably well,” said Westpac senior economist Matthew Hassan.

Commonwealth Government bond yields fell significantly on the day, in contrast with the rises of US Treasury counterparts overnight. By the close of business, the 3-year ACGB yield had shed 10bps to 3.33% while 10-year and 20-year yields both finished 6bps lower at 3.62% and 3.89% respectively.

“We expect that uncertainty around construction costs, initial rate hikes and the prospect of further increases in the cost of debt all contributed to the decline in unit approvals,” said ANZ senior economist Adelaide Timbrell. “We expect total building approvals to keep falling as more rate hikes put downward pressure on borrowing capacity of both developers and individual homebuilders.”

Approvals for new houses increased by 1.0% over the month after rising by 1.4% in June. On a 12-month basis, house approvals were 17.2% lower than they were in July 2021, up from June’s comparable figure of -21.7%.

Apartment approval figures are usually a lot more volatile and July’s total plummeted by 45.2% after a 3.5% decline in June. The 12-month growth figure deteriorated from June’s revised rate of -9.1% to -42.9%.

Non-residential approvals decreased by 22.6% in dollar terms over the month and by 0.9% on an annual basis. Figures in this segment also tend to be rather volatile.

Residential alteration approvals decreased by 1.3% in dollar terms over the month and were 3.6% lower than in July 2021.