Approvals for building new homes have fallen to a decade-long low as rising interest rates and rising construction costs drive buyers out of the market.
Total approvals fell to 27.6 percent in January, seasonally adjusted, reversing December’s 15.3 percent gain.
New home building permits in the private sector fell to 13.8 percent, the fifth consecutive month of declines, to the lowest level since June 2012.
With the exception of Queensland (+25.6 percent), where new apartment construction drove numbers up, all states were in the red. The two most populous states, NSW (-49 percent) and Victoria (-38.6 percent), led the malaise.
ANZ senior economist Adelaide Timbrell said falling house prices and rising interest rates would “reduce the appetite for new housing projects in the coming months”.
Since May, the Reserve Bank has raised cash rates nine times to 3.35 percent as it battles skyrocketing inflation (7.8 percent).
Maree Kilroy, senior economist at BIS Oxford Economics, said home and land parcel buyers struggled with higher borrowing costs.
“Recent reports from the RBA point to further rate hikes in the coming months that are likely to push the cash rate above 4 percent, further weighing on demand for new homes,” she said.
“For households depositing deposits on lots in 2021 and 2022, financing in settlement has become a challenge.
“Financing the construction phase has also become more difficult, impacted by both higher financing costs and an almost 30 percent increase in construction costs since the start of the pandemic.”
She added that the near-term outlook for housing construction has continued to deteriorate in recent months.
“While there are signs that labor and material supply issues are fading in some areas and that growth in home construction costs has slowed, both challenges for builders will persist in 2023 given the large backlog of work,” she said.
Applications for greenfield land and off-the-plan apartments were down sharply from a year ago and would remain weak in the coming year, she said.
Denita Wawn, head of Master Builders Australia, said more needs to be done to tackle delivery barriers and speed up new home deliveries to curb the looming rental crisis.
“Without sensible fiscal leverage, we see the negative impact of rising interest rates playing out,” Ms Wawn said.
“Builders are seeing signs of declining sales and we expect this slowdown to continue through 2023.”