Building approvals data disguises turn in housing market

The most recent building data released from the Australian Bureau of Statistics covering approvals throughout July for detached houses and multi-units show an increase, although there is a downturn in the market.

HIA economist Tom Devitt said that building approvals data for July continues to reflect the magnitude of Australia’s existing pipeline of home building work, rather than the declines in housing demand that are evident in other leading indicators.

“Building approvals for new houses in July increased by 1.0 per cent compared to the previous month,” he said.

“This leaves approvals 23.0 per cent lower in the three months to July 2022 compared to the same time last year.

“Despite this decline, house approvals in the three months to July 2022 were 12.0 per cent higher than the same time in 2019.”

The strong volume of house approvals in recent months reflects the significant number of new homes across Australia that had been sold earlier in the year, but not yet approved.

The data for July 2022 hides the impact that rising interest rates are already having on more timely numbers.

Mr Devitt said that new home sales across Australia declined by 13.1 per cent in July, following even earlier reports from the industry of a slowing in the number of groups visiting display sites.

“This will see weaker sales volumes in the second half of 2022,” he said.

“Approvals of multi units fell sharply in July, to see approvals in the three months to July 16.8 per cent lower than in the same period in 2021.

“Despite this decline they remain comparable with volumes of approvals prior to the pandemic.”

Given the large volume of work under construction and approved but not commenced, there is expected to be a significant lag between the increase in the cash rate and an adverse impact on new home construction.

“The long lead times in this current cycle will hide the impact of rate rises and risk the RBA over shooting with unnecessary rate increases,” Mr Devitt said.