The largest rise in building approvals in three months has been fuelled by another surge in apartments, which should help restrain rising home prices.

Approvals for the construction of new homes rose 7.9 per cent in January, beating market expectations, and were up 9.1 per cent in the 12 months to January, the Australian Bureau of Statistics said.

Approvals for private sector houses rose 0.4 per cent in the month, while other dwellings including apartment blocks and townhouses rose 19.6 per cent.  The increasing supply of homes in large cities will eventually slow price rises, National Australia Bank senior economist David de Garis said.

“It will help in time, but with apartment approvals the lags are longer,” he said.

“The pipeline of building seems to be growing through January, that’s good for dwelling investment for the first half of this year and beyond.”

While new housing is on the rise, weakness in other parts of the economy should leave the door open for more interest rate cuts by the Reserve Bank in 2015, Mr de Garis said.

“It’s problematic for the RBA because they’ve certainly got growth in dwelling investment but they need a lot of growth elsewhere, so we still think there is room for the RBA to cut in the months ahead,” he said.

JP Morgan economist Tom Kennedy said the building approval figures were much better than expected, but construction of detached houses remained soft.

Ongoing property price rises show demand is still outpacing supply, despite the strong levels of new approvals, he said.

“Structurally, Australia hasn’t built enough houses over the past decade, so this is helping to correct that,” Mr Kennedy said.

“If we were building too many houses, there’d be no price pressure.

“They’re obviously being built to meet demand and, at the moment, the price is telling you that the demand is continuing to outpace supply.”


By Jason Cadden