Building approvals jump 29.7% on apartment rebound

Australian residential building approvals rose sharply in February, led by apartment approvals, according to a CreditorWatch economic brief by Chief Economist Ivan Colhoun.

Approvals climbed 29.7% month on month after falling in the previous two months, with the rebound concentrated in the more volatile multi-unit segment. Apartment approvals rose 101.2% from January, reversing steep declines in December and January.

By contrast, detached housing showed little movement. Private sector house approvals edged up 0.2% in February and were 6.1% higher than a year earlier, pointing to a steadier but less pronounced recovery in that part of the market.

The figures suggest the broader lift in residential construction activity remained uneven before financial and energy pressures intensified in March. Colhoun said the surge in approvals was not unexpected, given the sharp month-to-month swings in apartment approvals.

Construction pressure

Conditions in the construction sector had been relatively stable before March. NAB survey data showed firms reporting reasonable business conditions, while the profitability strains seen during the COVID period had eased.

That backdrop may now be changing. The brief pointed to the Reserve Bank of Australia's second consecutive interest rate increase and a sharp rise in energy prices in March as new headwinds for builders, particularly in a sector with heavy energy use and exposure to materials costs.

Colhoun said the recent cost shift could change the tone of business conditions data when later surveys are published. The brief also noted reports of large price rises in some construction materials during March.

Insolvency risk

Lower interest rates last year and an improved ability for construction businesses to pass higher costs on to customers helped steady insolvencies through much of 2025, although failures remained elevated. That period of stability may prove short-lived if borrowing costs and input prices stay high.

"The massive rise in residential building approvals in February was not completely unexpected, given the very large drops in the volatile apartment category experienced in December and January. This re-established the recovering trend for residential construction, though this is concentrated in approvals to build apartments. This data was of course, before the RBA's second interest rate increase and the huge rise in energy prices during March. Construction is an energy-intensive sector, and the combination of higher interest rates and higher energy prices suggests insolvencies will begin to rise again in the sector in the coming months. The best outcome would be a very swift resolution of the closure of the Strait of Hormuz, which would likely reverse much of the recent large increases in input prices," said Ivan Colhoun, Chief Economist at CreditorWatch.

His assessment distinguishes the immediate signal from approvals data and the likely trading environment for builders in the months ahead. While the February figures restored an upward trend in residential approvals, the support from lower borrowing costs seen earlier appears to have faded.

Apartments remain the main driver of the recent bounce, but that segment is also the least stable indicator of momentum. Previous falls in apartment approvals were not treated as a break in trend, and February's rebound largely restored that earlier pattern rather than marking a dramatic new phase of growth.

Detached house approvals present a different picture. The small monthly increase in February, alongside modest annual growth, points to a recovery that is more established but still subdued by historical standards, with high construction costs weighing on activity.

"Ahead of the RBA's second interest rate increase and the significant increase in energy prices in March, residential building approvals rose 29.7% m/m in February. This followed significant falls in January and December. The bounce back, as expected, was very large, driven by the very volatile and lumpy apartment approvals category. This category had recorded falls of 29.7% and 25% in December and January, respectively. Apartment approvals surged 101.2% m/m, re-establishing the improving trend for residential construction approvals, though previous falls had not been assessed as a change in trend. The less volatile and larger Private Sector House approval category was broadly unchanged in February (+0.2% m/m) and is now 6.1% higher than a year earlier. The improving trend for this series is now more well established, though it is still relatively timid compared to previous cyclical upturns, likely in part reflecting already very elevated construction costs," Colhoun said.

A rapid reopening of the Strait of Hormuz would be the most helpful development in easing recent input cost increases and limiting further strain on the sector, the brief said.