Building approvals for new homes in the ACT have crashed to their lowest level in almost 20 years, headlining a nationwide slowdown in approvals that is set to deepen the country's housing supply and affordability challenge.
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Just 42 new houses were approved in Canberra in January, the lowest count since the beginning of 2006, according to Australian Bureau of Statistics data, contributing to a near-28 per cent decline in dwelling approvals nationally to 12,065 - the weakest result since mid-2012.
The number of approvals has slowed sharply since late last year as rising interest rates and high construction costs have deterred prospective buyers, plunging 42 per cent in the three months to January. The number of approvals in the ACT halved over the same period.
The results underline concerns that the supply of housing is falling increasingly further behind demand, exacerbating shortages of homes to rent and buy and causing social housing waiting lists to blow out even further.
Though builders are currently working through a large backlog of work, the construction industry has warned that the plunge in approvals presages a slump in housing activity.
Master Builders Australia chief executive officer Denita Wawn said approvals for detached homes had fallen well below pre-pandemic levels and was a "direct consequence of the sharp hike in interest rates and inflation over the past year".
She warned that the building slowdown, particularly in high density housing, would add to pressures in the country's tight rental market.
Nationally, the rental vacancy rate is below 1 per cent and rents grew at an annual rate of 4.8 per cent in January, increasing the financial strain on many families and feeding into inflation.
"Without a strong pick up in apartments and units entering the pipeline, [pressures in the rental market] will be difficult to neutralise," Ms Wawn said.
But Housing Industry Association senior economist Tom Devitt warned the slowdown in approvals was likely to deepen.
"This will not be the end of the decline in approvals," Mr Devitt said. "The adverse impact of last year's cash rate increases is still to fully flow through."
He said higher interest rates were compounding the effects from rising land, labour, materials and compliance costs.
Mr Devitt said the large volume of work already underway would help hold unemployment down, but warned that the Reserve Bank of Australia risked overshooting if it implemented further interest rate hikes.
"If the RBA continues to raise rates, they do risk a longer and deeper slowdown in economic growth than is necessary," he said.
But the RBA has indicated that further rate hikes are likely and markets expect the cash rate will be raised to 3.6 per cent next Tuesday and will reach 4.1 per cent by mid-year.
While ABS data released on Wednesday showed annual economic growth slowed to 2.7 per cent in the December quarter and inflation edged lower to 7.4 per cent in January, the central bank is worried that monetary policy needs to be tighter if underlying inflation is to be brought down.
The slowdown in approvals is coinciding with an increase in population growth as the removal of travel restrictions has allowed an influx of migrants, including students and workers with skills desperately needed to address the nation's labour shortage.
The nation's population grew by 291,000 last financial year, including a net migrant intake of 171,000, and the government has flagged the intake is likely to reach 230,000 or more this financial year.
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CoreLogic head of Australian research Eliza Owen said migrants typically moved into high-density housing on arrival, so the nation needed to build many more apartments and units just to keep up with the influx, let alone meet the housing needs of those already here.
But Ms Owen said the shortage of rentals was less acute in the ACT than the rest of the country.
She said rents in Canberra fell 3 per cent last month and had declined in five of the past six months to be 2 per cent down from the record high reached last June.
However, demand for social housing is acute across the country. Two years ago the waiting list for social housing had blown out to 176,000 people, almost 40 per cent of whom were assessed as being in "greatest need" and the number is expected to have increased substantially since.
Housing Minister Julie Collins said the federal government's $10 billion Housing Australia Future Fund, would "generate the most significant investment in new social and affordable housing in a decade".
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