March building approvals experience a material slowdown

  • By Zilla Efrat

Australian building approvals fell 18.5 per cent in March after rising a 42 per cent rise in February, according to the Australian Bureau of Statistics (ABS).

According to Daniel Rossi, ABS director of construction statistics, a 29.9 per cent drop in approvals for private sector dwellings, excluding houses, is responsible for the fall.

"Approvals for private sector houses also decreased, falling 3 per cent in March, following a 14.6 per cent rise in February," he says.

J.P. Morgan’s Jack P Stinson says the March decline was larger than anticipated by both the J.P. Morgan (-15 per cent month-on-month) and consensus (-12 per cent month-on-month) forecasts.

“Given the surge in approvals in February was on the back of Omicron-related lag effects, we had anticipated a sizeable fall in approvals this month,” he says.

While there is noise in the series month to month, he notes that the volume of approvals in March was just over 4 per cent below the average volume across January and February and 15 per cent below December’s number, so the latest figure represents a material slowdown.

“Since the peak in total approvals in March 2021, the series has consistently fallen, as government stimulus has been unwound and housing market conditions have softened, and it is now tracking around the immediate pre-pandemic average,” says Stinson.

“Over the medium-term, approvals are positively related to house prices and inversely related to mortgage rates. So, with both fixed and variable mortgage rates now on the move upward and house price growth already decelerating, approvals have room to fall further.

“Weighing on approvals further this cycle is the fact that households likely front-loaded new developments, to take advantage of the Home-Builder scheme. Given these factors, it is plausible that average monthly approvals will be lower than the average seen from 2014 onward and more in line with the average monthly volumes seen over 2010-2013.”

Across Australia, the ABS says the number of dwelling approvals fell in Victoria (-34.6 per cent), Tasmania (-27.3 per cent), New South Wales (-23.9 per cent), and South Australia (-23.5 per cent), in seasonally adjusted terms. Dwelling approvals increased in Queensland (12.4 per cent) and Western Australia (5.1 per cent).

Approvals for private sector houses rose in Queensland (5.8 per cent) and Western Australia (0.3 per cent) but fell in all other mainland states. In New South Wales, they were down 7.5 per cent. They were 5 per cent lower in Victoria and they fell 2.2 per cent in South Australia.

The value of total building approved fell 10.8 per cent in March, in seasonally adjusted terms. The value of total residential building dropped by 18.3 per cent following a 37.7 per cent rise in February. The fall in total residential building value was driven by a 20.7 per cent decrease in new residential building, while the result in alterations and additions was flat.

The value of non-residential building fell 0.8 per cent, after a sharp 130.1 per cent February increase. The March result was driven by a large number of public developments, with 11 projects valued over $30 million approved, including four greater than $100 million, the ABS says.