Building approvals rebound but plunging loan commitments tell different story

Despite a rise in dwelling approvals, the decline in the value of new loan commitments points towards the building boom ending in 2024 as interest rate hikes filter through the construction cycle.

A generic paper based proposal/design that has been stamped "Approved" in large diagonal red text.
There has been a sharp bounce back in apartment approvals. (Image source:

The value of new loan commitments for housing continues to fall even as building approvals rebounded from a decade-long low.

Australian Bureau of Statistics (ABS) data released Tuesday (4 October) showed that the value of new home commitments for housing fell 3.4 per cent to $27.4 billion in August after an 8.5 per cent drop in July.

The latest monthly decline brings the value of housing loans to its lowest level in almost two years, down by 15.4 per cent on three months earlier.

According to ABS data released on the same day, the total number of dwellings approved rose 28.1 per cent in August, following a 18.2 per cent decrease in July.

Tom Devitt, Economist at the Housing industry Association (HIA) told API Magazine the data on the rise in building approvals lagged that of loan commitments, and said the fall in the latter pointed to the end of the building boom.

“Today’s (new loan) data is consistent with other leading indications, such as HIA’s New Home Sales Survey, showing new home sales dropped in July and August in response to higher interest rates.

“If these trends are sustained, which is expected, then the 2.25 per cent increase in the cash rate so far will have brought this pandemic building boom to an end.

“There is still a significant volume of work under construction that is driving economic activity across the economy and keeping the unemployment rate at exceptionally low levels.

“When this pool of work is completed, the full impact of this rate rising cycle will emerge.”

“There remains a risk that this volume of ongoing work will obscure the adverse impact of rising interest rates.

“These treacherous lags that characterise this housing cycle could result in the RBA weighing too heavily on household finances and jeopardising the housing industry’s future soft landing,” concluded Mr Devitt.

Housing loan- commitments

Government incentives

Katherine Keenan, head of Finance and Wealth at the ABS, said the value of new owner-occupier loan commitments fell 2.7 per cent in August 2022, and the value of new investor loan commitments fell 4.8 per cent.

“Although lending continued to fall from the high levels of June 2022, the value of loan commitments in August remained elevated compared to pre-pandemic levels.

“Owner-occupier loans in August were 36 per cent higher than February 2020, while investor loans were 70 per cent higher,” Ms Keenan said.

The number of new loan commitments to owner-occupier first home buyers rose 10.4 per cent in August 2022 to 9,258. This was the largest rise since August 2020, although the level remained well below the January 2021 high of 16,330.

Increased demand was seen across almost all states and territories, particularly in Victoria (up 11.9 per cent), Queensland (up 14.3 per cent) and Western Australia (up 13.9 per cent).

Housing finance loan commitments by property purpose and state, seasonally adjusted – August 2022

Value ($b) : $18.5b $5.6b $5.5b $3.6b $1.0b $1.9b $0.3b $0.1b $0.5b
Value % change ** : -2.7% -8.5% -2.9% -0.4% -3.8% 7.2% 8.3% 7.0% 6.6%
Owner-occupier first home buyers
Number % change ** : 10.4% 4.4% 11.9% 14.3% -1.4% 13.9% 30.7% † 22.6% † 9.5%
Value % change ** : -4.8% -4.9% -4.0% -2.7% -9.6% 3.0% 4.1% -26.5% † 3.0%

Source: ABS. * Total Australia levels do not necessarily equal the sum of states, due to independent seasonal adjustment. ** All movements are on a month-to-month basis. † A smaller and more volatile series

“Anecdotal feedback attributed some of the August owner-occupier first home buyer increased demand to the 2022-23 First Home Guarantee,” Ms Keenan said.

At the national level, the average loan size for owner-occupier dwellings (which includes construction and the purchase of new and existing dwellings) fell in August from $609,000 to $589,000, though it remained 23 per cent higher than that seen in February 2020. Average loan sizes fell in every state, however rose slightly in both territories.

The Real Estate Institute of Australia (REIA) President, Mr Hayden Groves said that while the value of new loan commitments fell, the number of first home buyers rose 10.4 per cent to 9,258, the highest since August 2020.

He attributed government incentives to this increase.

“First home buyers are being aided by a more buyer friendly market as well as capitalising on programs like the Australian Government Home Guarantee Scheme.”

Apartments a driving force

Approvals for private sector dwellings excluding houses rose 99.1 per cent in August, with a sharp bounce back in apartment approvals driving the result.

The strong upward movement in August follows a weak July result, which had the lowest number of other residential dwellings approved since January 2012.

Across Australia, the number of dwelling approvals rose in all states, in seasonally adjusted terms. Approvals rose in New South Wales (70.6 per cent), Victoria (19.4 per cent), Western Australia (13.6 per cent), Queensland (9.5 per cent), Tasmania (3.9 per cent) and South Australia (3.5 per cent).

The result in approvals for private sector houses varied across the states. Approvals rose in New South Wales (12.7 per cent), Western Australia (8.9 per cent), and Victoria (1.2 per cent). In contrast, approvals for private sector houses fell in South Australia (-4.5 per cent) and Queensland (-0.1 per cent).

Mr Devitt told API Magazine that builders will be kept busy for the next year but interest rates hikes will have an impact on the amount of work around next year.

“More materials are becoming available so more work is commencing on the work that builders have accumulated in the pipeline,”

“The interest rate hikes of today will filter through to the building approval numbers of next year,” he said.

Timothy Hibbert, Head of Property and Building Forecasting, BIS Oxford Economics, told AAP he expects the Reserve Bank to hike the cash rate to 3.1 per cent by year-end, pushing the average new mortgage rate to near six per cent and causing a 25 to 30 per cent decline in borrowing power for homebuyers compared to late 2021.

“Our baseline expectation is for a nationwide all dwelling peak-to-trough fall of 12 per cent,” he said.

“This price correction is driven completely by credit availability.”

The news for renters does not look great either.

While the value of new owner-occupier loan commitments fell 2.7 per cent in August 2022, the value of new investor loan commitments fell 4.8 per cent.

With less investor stock coming into the market, rental vacancy rates, and prices, look set to rise even further.

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