Approvals drop in month of first rate rise

7 January 2004

Building approvals fell in November 2003, the same month the Reserve Bank of Australia began a tightening interest rate cycle.

Figures released today show that in November last year approvals fell by 6.7 per cent to 14,913 dwellings. This fall reflected a 1.2 per cent decline in private sector house approvals and a large 17.0 per cent drop in approvals for multi-unit dwellings.

Australia’s peak building industry body, the Housing Industry Association, said the 6.7 per cent fall in approvals raises concern over a potential over-shoot on interest rates.

HIA’s Senior Economist, Harley Dale said interest rates should not continue to be lifted before allowing the effects of the total 0.5 per cent in rate rises already in the system to be fully absorbed.

"The fall in building approvals in November provides a reflection of the clear change in buyer sentiment following the first 0.25 per cent increase in interest rates that occurred early in the same month." Mr Dale said.

"The trend series for approvals has been clearly slowing for most states and territories for some time, and this deteriorating trend has been reinforced by the November figures. On top of this downward trend, building approvals have now been seen to have fallen in the first month in which interest rates rose, a month where there was also a noticeable fall in both display home traffic and deposits on new homes." Mr Dale said.

"There is little doubt that the industry has peaked and the fundamentals that drive housing and renovation demand point to a soft landing this year."

On a state by state basis, South Australia recorded the largest fall, down 22.0 per cent followed by Victoria, down 12.6 per cent, Western Australia, down 10.7 per cent, and New South Wales, down 4.2 per cent. The only states to record increases were Tasmania, up 27.2 per cent and Queensland, up 11.1 per cent.