Economists are warning Australia’s residential housing boom is past its peak as the country records a sharp decline in building approvals in October.

The latest Australian Bureau of Statistics building approvals data shows a significant downturn in approvals during October with approvals dropping 12.9 per cent month on month, and 8.1 per cent year on year.

While detached dwellings recorded a 4.3 per cent monthly increase, this was heavily outweighed by a 37.5 per cent decrease in approvals of the more volatile unit market.

New South Wales recorded the most severe drop in building approvals in October, down 29.4 per cent, the biggest monthly decline in a decade, according to Commsec senior economist Ryan Felsman.

“The fall was largely driven by a decline in higher-density apartment approvals, which plunged 29.4 per cent in October, reflecting an unwinding of approvals for several large housing projects in Sydney after a surge in consents during September,” Felsman said.

“This saw overall NSW residential building approvals drop 29.4 per cent, the biggest monthly decline since September 2011.”

Building approvals by dwelling type

_{^Source: ABS Building approvals October 2021}

ANZ senior economist Adelaide Trimbell has warned building approvals are “past their peak across all states”.

“The magnitude of the 12.9 per cent drop was driven by a reversion in approvals in New South Wales, though it also reflects an ongoing moderation of approvals from Homebuilder highs nationally,” she said.

“Only Queensland saw a rise in monthly approvals … increases in fixed rates may put further downward pressure on building next year.

“We expect building approvals to drop further as borrowing costs continue to rise and the boost from Homebuilder unwinds.

“An eventual resumption of immigration will provide some offset, but it is difficult to be sure when.”

Private sector credit rose 0.5 per cent in October to be up 5.7 per cent year on year—the strongest annual growth rate in five years.

Housing Industry Association economist Tom Devitt said consumer preference was driving ongoing demand for detached houses.

“Detached building approvals are continuing to sustain healthy levels, above those seen pre-Covid,” Devitt said.

“Ongoing strong sales and approvals numbers continue to confirm that detached home building will remain elevated throughout 2022.

“The value of renovations approved also remains elevated … the past 12 months has seen the value of renovations approved increase by 37.3 per cent on the previous year.”

The average value of an approved house in Australia has risen to a record high of $366,700, up 13 per cent on this time last year.

As material and labour shortages continue to bite into the construction sector’s bottom line, price growth is expected to continue into 2022.