Approvals have risen as lending for new home construction throughout Australia has eased but remains at high levels in what appear to be promising signs for the nation’s home building sector.

As the Reserve Bank of Australia (RBA) lifted interest rates by a lower-than-expected 0.25 percent on Tuesday, two sets of ABS data released on Tuesday suggest that the slowdown in housing construction activity may be easing at least for now.

On building approvals, the data indicates that the number of dwellings which were approved for construction rose by 28.1 percent in August to almost 17,500 (17,497).

Granted, this figure is misleading as it reflects a 99.1 percent rebound in approvals for the statistically volatile multi-unit sector (units, townhouses, apartments etc.) following an abnormally low reading in July.

Encouragingly, however, approvals in the more statistically stable detached house sector rose by 4.1 percent to 10,459 – a level which is generally higher compared with those seen prior to the pandemic.

Meanwhile, lending data indicates that the seasonally adjusted number of loans which were made to owner occupiers specifically to finance construction of new dwellings contracted by 1.4 percent in August but remained at historically healthy levels at 4,088 (see chart).

With both data sets implying reasonably strong levels of activity by historic standards, the latest data appears to indicate that the pace at which new work is coming in for builders has stabilised at healthy levels for now.

Nevertheless, it is likely that activity may contract further going forward as interest rates rise further and the full extent of recent increases flows through.

The latest data comes as the Reserve Bank yesterday lifted official interest rates by a further 0.25 percent from 2.35 percent to 2.60 percent.

The increase was more moderate compared with the 0.5 percent increase which many economists had expected.

On September 21, for example, Westpac chief economist Bill Evans told a Housing Industry Association breakfast that the RBA would need to lift rates by 0.5 percent this month followed by further increases of 0.25 percent in November, December and February.

Evans told the audience that the RBA would need to act swiftly to soften demand in order to wring embedded inflation and inflation expectations out of the system.

In its statement, however, the RBA said the more modest increase in rates would help to achieve a sustainable balance of demand and supply within the economy.

It forecast that inflation would rise further in the months ahead before easing back toward the bank’s 2-3 percent target.

It said that further rises in interest rates are likely – the size and timing of which will be determined by incoming data.

Building industry lobby groups have welcomed the latest data.

In a statement, Master Builders Australia CEO Denita Wawn welcomed the stabilisation in approvals but cautioned that challenges remain.

Master Builders recently forecast that new home building activity will return to growth over the medium term after easing in the short term.

However, Wawn cautioned that the nation is not expected to return to building the 200,000 plus homes which it says is needed annually in order to meet future housing requirements until 2026.

“Today’s approvals data provides some evidence that home building activity may have stopped falling and that we are entering into a new phase of stability,” Wawn said.

“Nevertheless, a cautionary approach should be taken given the difficult economic backdrop of rising interest rates, cost inflation, and ongoing supply constraints as identified by the Productivity Commission last week.”

Enjoying Sourceable articles? Subscribe for Free and receive daily updates of all articles which are published on our site

Want to grow your sales, reach more new clients and expand your client base across Australia’s design and construction sector? 

Advertise on Sourceable and have your business seen by the thousands of architects, engineers, builders/construction contractors, subcontractors/trade contractors, property developers and building industry suppliers who read our stories across the civil, commercial and residential construction sector