Biggest fall in NSW dwelling approvals in a decade

Building approvals; Private sector credit

Dwelling approvals fell by 12.9 per cent in October – the biggest fall in 17 months – to be down 8.1 per cent on a year ago. Approvals to build higher-density apartment approvals plunged 36.1 per cent – the biggest fall in almost 4 years. And NSW council consents dropped 29.4 per cent – the biggest monthly decline in a decade.

Private sector credit (effectively outstanding loans) rose by 0.5 per cent in October to be up 5.7 per cent on a year ago – the strongest annual growth rate in 5 years.

What does it mean?

• Council approvals to build new dwellings have declined for six out of the past seven months due to the unwinding of HomeBuilder stimulus-related housing activity and Delta virus lockdown disruptions in Australia’s south-east.

• Total residential building approvals declined by 12.9 per cent in October – the biggest fall since the national lockdown in May 2020. The fall was largely driven by a decline in higher-density apartment approvals, which plunged by 36.1 per cent in October – the biggest fall in almost 4 years – reflecting an unwinding of approvals (down 49.6 per cent) for several large housing projects in Sydney after a surge in consents during September (up 116.8 per cent). This saw overall NSW residential building approvals drop 29.4 per cent, the biggest monthly decline since September 2011.

• Home building is expected to remain elevated over the next 12-18 months due to still-solid home buyer demand and a large backlog of approvals due to recent lockdowns. Aussie builders and their contractors remain under pressure to deliver projects on-time and on-budget as they work through a huge pipeline of residential, commercial and infrastructure-related construction work. Already construction companies are experiencing skilled trade shortages and rising building materials costs due to supply-chain disruptions.

• The latest Reserve Bank financial aggregates were issued today. New home lending demand eased during recent Delta lockdowns with the pace of home price growth also slowing. But housing credit growth has held-up. In fact, strength in Australia’s residential housing market has seen housing credit surge by 6.7 per cent over the year to October with owner-occupier housing credit 9 per cent higher – both recording the strongest annual growth rates in 5 years. Investor housing credit is also up – 2.6 per cent higher on a year ago – the strongest annual rate in 3½ years.

• With lockdowns appearing to have limited impact on the property market, policymakers are keeping a close eye on elevated household mortgage debt levels and investor lending demand as home prices continue to lift. Already expectations are growing that a further tightening of macro-prudential policy will be required over the coming year.

• That said, rising fixed mortgage rates and announced changes by banking regulator APRA on mortgage serviceability guidelines are expected to slow property market activity in 2022.

• Business credit continues to lift with firms increasing their borrowing to support cash flows through to the end of lockdowns in October. Business credit is up 5.3 per cent over the year to October – the strongest pace in 17 months.

• And Aussies continued to deleverage during lockdowns, supported by excess savings, with personal credit flat in October. APRA data released today showed that deposits from households increased by $9.7 billion or 0.8 per cent in October to a record $1,206.6 billion, up by 9.8 per cent on a year ago. And loans to households via credit cards rose by 1.1 per cent – the first increase in 6 months – in October. But credit card lending is down 7.6 per cent on the year.

 

What do you need to know?

Dwelling approvals – October

• Dwelling approvals fell by 12.9 per cent – the biggest fall in 17 months – in October. Approvals are down 8.1 per cent on a year ago.

• In rolling annual terms, dwelling approvals stood at 229,528 at the end of October, up 27.3 per cent on the year and just 5.7 per cent below all-time highs.

• Approvals to build detached houses lifted 4.5 per cent in October with private houses up 4.3 per cent.

• But higher-density apartment approvals plunged 36.1 per cent – the biggest fall in almost 4 years – with private higher-density apartment approvals down 37.5 per cent.

• Dwelling approvals across states in October: NSW (-29.4 per cent); Victoria (-2 per cent); Queensland (+2.2 per cent); South Australia (-8.1 per cent); Western Australia (-2.7 per cent); and Tasmania (-1.8 per cent).

• The value of all commercial and residential building approvals fell by 15.1 per cent in October. Total residential approvals dropped 11.4 per cent with new building down 13.5 per cent. But alterations & additions lifted 2.6 per cent and commercial building dipped 20.9 per cent.

Private sector credit – October

• Private sector credit (effectively outstanding loans) rose by 0.5 per cent in October to be up 5.7 per cent on a year ago – the strongest annual growth rate in 5 years.

• Housing credit lifted by 0.6 per cent in October to be up 6.7 per cent when compared to a year ago – the strongest annual pace in over 5 years.

• Owner-occupier housing credit jumped by 0.7 per cent in October to be up 9 per cent on a year ago – the strongest annual growth rate in 5 years. And investor housing credit rose by 0.3 per cent to be 2.6 per cent higher on a year ago – the strongest annual rate in 3½ years.

• Elsewhere, personal credit was flat in October, but down 4.6 cent over the year.

• Business credit lifted 0.5 per cent in October to be up 5.3 per cent over the year – the strongest pace in 17 months.

• The M3 money aggregate lifted by 0.7 per cent in the month to e up 8 per cent from a year ago. Broad Money also rose by 0.7 per cent to be up 8.1 per cent from a year ago.

• The APRA authorised deposit-taking institutional statistics revealed that loans to households via credit cards rose by 1.1 per cent – the first increase in 6 months – in October. While credit card lending is down 7.6 per cent on the year, the data is affected by series breaks. Credit card lending is down 17.2 per cent since April 2020 when the series break took effect.

• According to APRA, deposits from households increased by $9.7 billion or 0.8 per cent in October to a record $1,206.6 billion, up by 9.8 per cent on a year ago.

Published by Ryan Felsman, Senior Economist, CommSec