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Dwelling approvals fall in September with detached house approvals flatlining over 2022 - featured image
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Dwelling approvals fall in September with detached house approvals flatlining over 2022

key takeaways

Key takeaways

Dwelling approvals fell 5.8% over the month of September according to the latest ABS data.

The September report suggests that dwelling approvals are beginning to weaken reflecting the harsh set of circumstances facing the housing market, including: aggressive rate rises; a material correction across wider housing markets; sharp rises in building costs and associated strains on builders working through a large backlog of unprofitable work; and uncertainties around the timing and cost of new builds due to widespread supply issues affecting both materials and labour.

That being said, approvals are still well above their 2018-19 lows, indicating that there is plenty of capacity for further weakness over the coming months.

Dwelling approvals fell 5.8% over the month of September according to the latest ABS data.

Daniel Rossi, Director of Construction Statistics at the ABS, said: "The fall in approvals was driven by private sector houses, which declined 7.8 per cent. Approvals for private sector dwellings excluding houses fell 1.8 per cent."

Overall detached house approvals are 32% below their peak in March 2021, but remain around 2018 average levels and are still 11% above 2019 average levels.

Private Dwelling Approvals 02 November

The September report suggests that dwelling approvals are beginning to weaken reflecting the harsh set of circumstances facing the housing market, including: aggressive rate rises; a material correction across wider housing markets; sharp rises in building costs and associated strains on builders working through a large backlog of unprofitable work; and uncertainties around the timing and cost of new builds due to widespread supply issues affecting both materials and labour.

That being said, approvals are still well above their 2018-19 lows, indicating that there is plenty of capacity for further weakness over the coming months.

Average approved house values rose strongly in the past two months

According to Taylor Nugent, Markets Economist at NAB, the September data erases the tentative signs of a surprising uplift in detached dwelling approvals.

Average Value Of New House Approvals 02 November

He further commented:

"The data again looks more consistent with detached house approvals having plateaued through 2022 after falling back from their stimulus-induced peaks.

That flow of new approvals remains at reasonably healthy levels despite sharp increases in construction costs and pulled forward demand over the past 2 years.

Detached residential pipelines are very full, with a record 104k houses under construction in Quarter 2."

Detached house fell across mainland states

By state, house approvals recorded declines in all mainland states.

Falls were led by Western Australia (-11.4 per cent), with Queensland (-8.6 per cent), New South Wales (-7.9 per cent), Victoria (-4.7 per cent), and South Australia (-4.3 per cent) also recorded declines.

House Approvals By State 02 November

The attached (apartments) series consolidated around its August level, down just 1.8% month on month after a 68.3% rebound in August took it above its recent trend.

Attached dwelling approvals are running a little above 2019 averages with strong approvals recorded in NSW in recent months, but remain well short of the levels seen in the 2015-18 period.

Apartment Approvals By State 02 November

What does this mean?

Today’s data also includes information on values where we can calculate an implied average value of a housing approval.

This has been a reasonable indicator of new dwelling construction cost inflation during the pandemic, which is a large component of the Australian CPI.

This month the average value rose 2.3% m/m, suggestive of little construction cost relief.

Mr Nugent said:

"The Quarter 3 PPI data had suggested some recent easing in input cost inflation led by timber, joinery and steel products, but still rising prices and continuing skilled labour shortages.

While we continue to expect an ongoing deceleration in the new dwelling construction costs through Quarter 4, the lift in the average cost of newly approved houses in today’s data suggests upside risks with elevated backlogs and still resilient demand."

Source of commentary and charts - National Australia Bank

About Robert Chandra is a Property Strategist at Metropole and has an intrinsic understanding of property markets backed by many years of real estate experience. This coupled with several degrees gives him a holistic perspective with which he can diagnose clients’ circumstances and goals and formulate strategies to bridge the gap.
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