The Australian Bureau of Statistics yesterday released its monthly building approvals data for July, with the housing sector remaining stagnant in comparison to last year.

Housing Industry Association (HIA) Economist, Tom Devitt, says the approvals data actually disguises the turn in the housing market, which is seemingly on the up due to house sales.

“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,” he says.

“Building approvals for new houses in July increased by one percent compared to the previous month. This leaves approvals 23 percent 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 percent higher than the same time in 2019.”

Devitt says interest rates are certainly having an impact on statistics.

“The strong volume of house approvals in recent months reflects the significant volume of new homes across Australia that had been sold earlier in the year, but not yet approved. The strong volume of approvals in July 2022 hides the impact that rising interest rates are already having on more timely data.

“New home sales across Australia declined by 13.1 percent 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.

“Approvals of multi units fell sharply in July, to see approvals in the three months to July 16.8 percent lower than in the same period in 2021. Despite this decline they remain comparable with volumes of approvals prior to the pandemic.”

Devitt believes that inflation increases will play a part in the slowing of construction of homes.

“Given the large volume of work under construction and approved but not commenced, there will 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.”

Jarrod Reedie

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