Home Insights As interest rates rise, approvals for new building work fall

As interest rates rise, approvals for new building work fall

by admin
0 comment

The number of new homes approved for construction fell 17.2% in July. This represents a very sharp decline.

This exaggerates the drop a bit, the monthly construction approvals are very volatile, and the “trend” measure that looks at this monthly volatility has a smaller drop than that. Still, July saw him down 1.5% compared to his June.

So why is new construction falling?

Approvals for new building work have fallen, but the hefty numbers need to be put into context. Photo: Getty

The monthly decline in July was largely due to fewer approvals for “other housing” housing, including apartments and semi-detached houses.

But looking at what has changed over the past year, the big difference is the number of new single-family homes approved.

From the second half of 2020 to the first half of 2021, approvals for new detached houses will increase rapidly, beginning (actual construction starts) peaked in mid-2021. This surge was driven by his two factors: the HomeBuilder government’s stimulus package and historically low interest rates.

Both of these tailwinds are now over.

That said, approvals for new single-family homes are also progressing at a reasonable pace. About 10,000 new single-family homes have been approved each month in recent months. That’s more than we’ve seen in 2019 and about as much as we’ve seen him from 2014 to mid-2018.

And those new approvals face a large pipeline of single-family homes already under construction.

After a surge in approvals and starts in 2020 and 2021, the number of homes currently under construction has skyrocketed as supply constraints limited the ease of working through that pipeline.

Investment in new homes will continue to slow as interest rates continue to rise. Home investment is one of the most interest-sensitive parts of economic activity.[1]

But with much of the supply-side disruption affecting the construction sector still constraining, it will be a while before the huge pipeline of homes under construction works.

that is construction activity And if the RBA raises interest rates, new home completions could last longer than normally expected.

[1] For example, residential investment is the most interest-sensitive component of the expenditure side of national accounts in the RBA’s MARTIN model of the Australian economy (Ballantine et al. 2019page 32).

You may also like