Grim news for one Aussie industry

Approvals to build new homes have slumped to a decade low as rising interest rates and soaring construction costs force buyers out of the market.

Total approvals slumped to 27.6 per cent in January, seasonally adjusted, reversing the 15.3 per cent gain made in December.

Permits to build new private sector houses slumped to 13.8 per cent, the fifth straight month of declines, to the lowest level since June 2012.

With the exception of Queensland (+25.6 per cent), where new apartment builds drove up numbers, all states were in the red. The two most populous states, NSW (-49 per cent) and Victoria (-38.6 per cent) led the slump.

ANZ senior economist Adelaide Timbrell said falling house prices and rising interest rates would “reduce appetite for new dwelling developments in the coming months”.

Since May, the Reserve Bank has raised the cash rate nine times, taking it to 3.35 per cent as it battles skyrocketing inflation (7.8 per cent).

BIS Oxford Economics senior economist Maree Kilroy said buyers of house and land packages were struggling in the face of higher borrowing costs.

“Recent messaging from the RBA points to further interest rate hikes in coming months that will likely push the cash rate above 4 per cent, which will weigh further on demand for new dwellings,” she said.

“For households that put down deposits on land lots over 2021 and 2022, finance at settlement has become challenging.

“Financing the build stage has similarly become tougher, where higher borrowing costs and a near 30 per cent run-up in construction costs since the start of the pandemic are both impacting.”

She added the near-term outlook for housing construction had progressively worsened in recent months.

“While there are signs that labour and material supply issues are fading in some areas and that construction cost growth has slowed for houses, both of these challenges will persist for builders over 2023 given how big the backlog of work has become,” she said.

Inquiries for greenfield land and off-the-plan apartments were down sharply on a year ago and were set to remain weak over the year ahead, she said.

Master Builders Australia chief Denita Wawn said more needed to be done to tackle supply barriers and speed up new home delivery in order to curb the looming rental crisis.

“Without sensible fiscal levers being pulled, we are seeing the negative consequences of rising interest rates playing out,” Ms Wawn said.

“Builders are seeing evidence of declining sales, and we anticipate this slowdown will continue over the course of 2023.”