Building approvals disappoint through February as apartment and unit permits slump to 12-year low

Building approvals remained sluggish through February, with softer than expected results indicating a worsening of the weak run of new housing construction in recent months.

Total dwellings approved, an indicator of Australia’s residential construction pipeline, slipped 1.9 per cent over the month, the Bureau of Statistics reported on Thursday, with just 12,520 new homes signed off for construction, according to the seasonally adjusted figures.

The reading was far weaker than the 3 per cent increase anticipated by economists.

While data for housing permits can be exceptionally volatile from month to month, and later subject to large revisions, home construction rates have trended sharply lower since their peak in March 2021, plunging more than 45 per cent.

Indeed, the monthly read meant just 163,100 new homes received approval in the 12 months to February, the lowest since March 2013’s year-ended reading.

Despite the overall monthly decrease, the result was buoyed by an uptick in permits issued for detached dwellings, which rose 10.7 per cent to 8404.

However, more volatile approvals data for units, apartments and townhouses dived 24.9 per cent to just 3771 – its lowest reading in 12 years.

The anaemic reading for new housing permits is especially pressing given that from July 1, the government’s target to build 1.2 million well-located homes over five years begins, requiring the construction of 240,000 homes on a year-ended basis.

The housing sector is being closely watched by economists as evidence that the RBA’s aggressive run of interest rate hikes to a 12-year high of 4.35 per cent is flowing through the economy and slowing consumption as intended.

While financial markets give next to zero chance that the central bank will cut interest rates at its next meeting, scheduled for May 6-7, they are fully priced for 25 basis points worth of unwinding in monetary policy by the RBA board’s September meeting.

Alongside high interest rates, legacy impacts of the Covid-19 pandemic, including labour and material shortages, have caused the housing market to seize up in the last 12 months, with spillover effects now evident across the construction sector and in furnishing and hardware sales.

More to come