Australia’s housing market is in a slump, with the number of new home approvals hitting a decade low in January.
The slump in approvals is being attributed to a number of factors, including rising interest rates and increasing construction costs. Interest rates are currently at their highest level in seven years, and this is making it difficult for potential buyers to secure finance to purchase new homes.
At the same time, construction costs have been steadily rising, with the cost of materials and labour continuing to climb. This is making it more difficult for developers to build affordable housing, and is forcing potential buyers out of the market.
In January, seasonally adjusted total approvals slumped to 27.6 per cent, undoing the 15.3 per cent rise seen in December. Furthermore, permits to construct new private sector houses dropped to 13.8 per cent, the fifth consecutive month of decreases, and the least amount since June 2012.
All states saw a decrease in numbers, with the exception of Queensland which experienced an increase of 25.6 per cent due to new apartment builds. Whereas, New South Wales and Victoria, experienced the most significant drop in numbers – 49 per cent and 38.6 per cent respectively.
Adelaide Timbrell, ANZ senior economist, noted the combination of decreasing house prices and increasing interest rates would decrease the desire for new housing developments in the upcoming months.
Maree Kilroy, a senior economist from BIS Oxford Economics, declared those purchasing house and land packages have been finding it hard to cope with elevated borrowing costs.
“The recent communication from the Reserve Bank of Australia suggests the interest rates are expected to go up in the upcoming months and the cash rate is likely to exceed 4 per cent, which will likely have a negative impact on the demand for new dwellings,” she said.
The decline in building approvals is being blamed on a number of factors, but chief among them is the Reserve Bank of Australia’s (RBA) decision to raise interest rates nine times since May.
This has had a dramatic effect on the cost of borrowing money to finance building projects, making it more expensive for developers and homebuyers alike.
