APPROVALS to build new homes in Australia fell by the most on record in January, with permits for private houses tumbling, suggesting weak residential property investment will continue to drag on the economy.

Total dwelling approvals tumbled 27.6 per cent, the most in records dating back to 1980, Australian Bureau of Statistics (ABS) data showed on Thursday (Mar 2). While the monthly series can be volatile — approvals jumped a revised 15.3 per cent in December — the trend has been weak for a while.

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

“The near-term outlook for residential building has continued to worsen over recent months,” said Maree Kilroy, a senior economist at BIS Oxford Economics, adding more interest rate hikes will further weigh on demand.

Australia’s residential construction industry is reeling from a combination of shortages of materials and labour, falling property prices and an unwinding of government subsidies that drove demand during the pandemic.

A housing shortfall risks further fuelling rental inflation at a time when the economy is seeing a strong rebound in population growth from immigration.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

The Reserve Bank of Australia (RBA) is also in the midst of its most aggressive tightening cycle in a generation, having raised rates by 3.25 percentage points since May to a 10-year high. Governor Philip Lowe recently said that policymakers had more work to do as inflation remains too high for comfort.

Money markets are pricing in a peak RBA cash rate of 4.2 per cent, from 3.35 per cent now.

“For households that put down deposits on land lots over 2021 and 2022, finance at settlement has become challenging,” BIS’s Kilroy said. “Financing the build stage has similarly become tougher,” with higher borrowing costs and surging construction costs both hurting.

Data this week showed dwelling investment declined in the final three months of 2022, detracting from overall GDP growth. Economists generally expect the weakness to persist in response to rising rates. BLOOMBERG