An economist is urging the Reserve Bank of Australia to “hold fire” on future rate rises after new building approvals declined again during the month of November.
The total number of dwellings approved fell nine per cent in November, following a 5.6 per cent decrease in October, according to the latest figures from the Australian Bureau of Statistics.
There was a 2.4 per cent decline in detached approvals and a 19.9 per cent decline in multi-unit approvals.
Approvals for private sector houses fell across most states, including in Victoria (down 8 per cent), Western Australia (down 6.1 per cent), South Australia (down 2.6 per cent) and Queensland (down 1.2 per cent).
Approvals in New South Wales rose 1.2 per cent in November.
Daniel Rossi, ABS Head of Construction Statistics, said the latest figures followed several months of weak numbers.
“The November result is the third consecutive month of declines for total dwelling approvals, having fallen 21.7 per cent since August,” Mr Rossi said.
The value of total building approvals fell 1.5 per cent in November, following a 0.4 per cent decrease in October.
The value of total residential building approvals fell four per cent, comprising of a 3.1 per cent decrease in new residential building and a 9.2 per cent decrease in alterations and additions.
In a sign of continuing demand in the commercial sector, the value of non-residential buildings approved increased two per cent, following a 2.3 per cent rise in October.
RBA should hold fire on rate rises
Housing Industry Association Economist Tom Devitt said the decline in building approvals was a natural consequence of the RBA’s aggressive cash rate policy.
“A fall in building approvals at the end of 2022 is the next step in what has been a very well broadcast downturn in the housing market caused by the increase in the cash rate,” Mr Devitt said.
He said that the impact of cash rate increases had become apparent in the building sector by mid-2022.
“Within two months of the RBA’s first interest rate hike in May 2022, leading indicators of building activity including new home sales started to decline,” Mr Devitt said.
“Investors, first home buyers and owner-occupiers started retreating from the housing market.
The huge backlog of building work emanating from the Covid construction boom is also drying up.
“Today’s data suggests that builders have worked through much of the large pipeline of work that existed in May 2022, when the RBA started increasing the cash rate,” Mr Devitt said.
“This will result in a slowdown in the number of homes under construction in 2023.”
The consequences of increased interest rates are already apparent in the construction sector but it would be some time before their full impact could be assessed.
“The full impact of the 2022 increases in the cash rate will not be observed until the second half of 2023,” Mr Devitt said.
What the RBA decided to do next would also determine the extent of the construction downturn.
“The depth of this downturn will be determined by the RBA’s cash rate decisions,” he said.
“The RBA has already undertaken the steepest hiking cycle in a generation and it needs to hold fire on further hikes to give their actions to date time to play out.
“As more housing market indicators reflect the impact of cash rate increases to date, the RBA will be under increasing pressure to reverse course in the second half of this year.”