Building approvals throughout Australia have plummeted to their lowest levels in more than a decade as the impact nine consecutive interest rate rises is flowing through into reduced demand for new home construction.

Releasing its latest data, the Australian Bureau of Statistics says that seasonally adjusted number of dwelling approvals plummeted by 27.6 percent in January after having previously increased by 15.3 percent in December.

This has taken approvals to their lowest level on record since July 2012.

Whilst some of the decline can be attributed to a large fall of 40.8 percent in the statistically volatile multi-units sector (units, townhouses, apartments etc.) following a 41.9 percent rise in December, approvals in the more statistically stable private detached house sector plummeted by 13.8 percent to reach their lowest level since June 2012.

Detached house approvals have now contracted for five consecutive months.

The latest data comes as demand for new housing in Australia has been affected by nine consecutive interest rate rises since the Reserve Bank of Australia began the current cycle of monetary policy tightening last May.

Last month, the RBA indicated that rate increases are likely as the bank works to bring inflation under control.

Housing Industry Association Senior Economist Tom Devitt said that approvals are likely to decline further as more of the effect from last year’s cash rate increases flows through.

But he said a large volume of work will keep unemployment in the national economy low until early 2024.

He encouraged the RBA to avoid overshooting on interest rates.

“The last time detached house approvals were at these low levels was also the last time the RBA overshot with increases in the cash rate, which was in June 2012,” Devitt said.

“This will not be the end of the decline in approvals. The adverse impact of last year’s cash rate increases is still to fully flow through to the official data.

“The higher cash rate is compounding the adverse impact of the rising cost of materials, labour and land as well as the increased costs of compliance with the building code.

“There remains a large volume of work underway on the ground that will be completed in 2023 and this will keep unemployment in the national economy exceptionally low until early 2024.”

“If the RBA continues to raise rates, they do risk a longer and deeper slowdown in economic growth than is necessary in this cycle.”

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