Record Housing Approvals Decline Blip, Not Trend

Economists are confident that January’s record drop in housing approvals is an outlier and that approvals and activity will increase during the rest of 2022.

January’s housing approvals were down by 27.9 per cent.

ABS director Daniel Rossi said the fall in the total number of homes approved in January was driven by a large fall for private sector dwellings excluding houses, which fell 43.6 per cent.

“Approvals for private sector houses also declined sharply, falling 17.5 per cent in January, following a 0.3 per cent decline in December,” he said.

Victoria’s approvals dropped by 35.5 per cent, Western Australia by 29.2 per cent, and NSW by 25.9 per cent with only Queensland registering an increase with a modest 0.5 per cent.

Change in dwelling values: February 2022

State Private sector houses Monthly change (%) Total dwelling unit approvals Monthly change (%)
NSW 2,046 -14 3,690 -25.9
VIC 2,701 -18.6 3,733 -35.5
QLD 1,841 -15.7 3,117 0.5
SA 695 -19.9 823 -29.2
WA 1,074 -16.5 1,147 -19.9
TAS n/a n/a 255 -13.9
NT n/a n/a n/a n/a
ACT n/a n/a n/a n/a
Australia 8712 -17.5 12,916 -27.9

^Source: ABS Building approvals data, February 2022

CBA’s Stephen Wu said that the end of the HomeBuilder scheme had had a huge impact.

“The sharp fall in private sector house approvals means that they have now largely retraced back to pre‑HomeBuilder levels,” Wu said.

“Total applications under the HomeBuilder scheme have been highest in Victoria and Queensland.

“Treasury data show that $2.1 billion in grant payments have so far been made under the HomeBuilder program.”

HIA economist Tom Devitt said that the pandemic explained the ABS figures for January.

“This sharp fall in January can be attributed to staff shortages during the Omicron outbreak and a higher-than-usual uptake of holiday leave,” Devitt said.

“The absence of council workers, private certifiers and building business staff will have weighed on the ability to process approvals.”

BIS Oxford Economics’ principal economist Timothy Hibbert said the ABS figures were due to rising construction costs and delays.

“Surging construction labour and material input costs is evident in the data, with the average cost of approved houses up 19.6 per cent nationally over the year to January 2022,” Hibbert said.

Ai Group’s performance of construction index for January backs up the ABS figures, with house building activity down 6.6 points to 40 and apartment building activity, 34.9 points to 21.4, signaling a contraction.

Construction industry

▲ Labour shortages and supply costs have caused building activity to slow down. 

Victoria’s drop of 35.5 per cent comes as the state government pulled its planning reform package off the table after complaints from the property industry over the proposed tax on developers to fund social housing.

Urban Taskforce’s chief executive Tom Forrest said despite some impact due pandemic effects, NSW’s recent elections caused its 25.9 per cent drop in approvals.

“While it is fair to say that Omicron had an impact, this data is seasonally adjusted and represents a disappointing start of the new year,” Forrest said.

“It appears that council planners simply stopped doing their job from about July last year as they prepared for local government elections—which themselves were postponed from September until December.

“The ongoing problems with the NSW planning system come at a time when NSW is facing a housing supply crisis.

“We have a new minister and a new secretary.

“It is high-time we saw improvement in housing approval data.”

Approvals expected to increase

However, PCI February 2022 data shows a house building activity 18.3 point increase to 58.3 with apartments increasing by 28.6 points to 50.

Hibbert predicted building approvals would increase for the rest of 2022.

“We expect the January data to be an outlier, with approvals rebounding sharply over the following months,” Hibbert said.

“HomeBuilder, very low interest rates, and elevated pressure on the housing stock will continue to support dwelling construction at a historically elevated level deeper in 2022.”

HIA economist Tom Devitt agreed.

“We anticipate an above average volume of approvals will be reported in coming months as the impact of [the pandemic] fades,” Devitt said.

“Early indications are that home building bounced back as the Omicron wave abated and builders were able to return to work.”

Concern about future inflationary pressures

Ai Group’s chief policy advisor Peter Burns said that there could be future inflationary pressures.

“Employment grew and there was a healthy pick-up in new orders across the construction sector,” Burns said.

“The difficulties in supply chains persisted although the pace of decline in supplier deliveries eased.

“Ongoing inflationary pressures were evident with cost rises for inputs and wages growth remaining elevated and selling prices also rising on the back of solid demand.

“[E]mployers from across the construction sector reported ongoing difficulties in filling positions particularly for skilled labour.

“These conditions, together with the rebound of new orders suggest further inflationary pressures in the period ahead.”


Article Source: