Australia can't pin all its hopes on the housing sector to drive the economic recovery, as building approvals appear to have passed their peak.
Approvals for the construction of new homes came in weaker than expected in June, falling five per cent against expectations of a flat result.
A steep 10.5 per cent drop in approvals for apartment blocks and townhouses was behind the result, while approvals for houses fell 2.2 per cent.
It had been hoped housing and residential construction would pick up the slack as the mining investment boom slows down.
But a recent tapering of approvals suggested housing alone may not be enough, JP Morgan economist Ben Jarman said.
“We have been seeing a soft patch after a strong run in the past 12 to 18 months,” he said.
“We might be passed the peak.
“I think the levels will still rise, but not at the pace that we’ve been seeing.
“The question is, is it strong enough to offset the fall in mining-related construction, and that’s where we think it’s probably not and that’s why we’ve been seeing the economy pushing below trend recently.”
It’s not all doom and gloom though, since the strong run of approvals will continue to flow through into construction over the next year or so, he said.
He said most of the weakness in the data released by the Australian Bureau of Statistics on Thursday came from apartment and townhouse approvals, which were typically volatile.
“The more pronounced weakness in higher density approvals warns against being too downbeat on home-building activity just yet,” Mr Jarman said.
“Given the usual lags between building approvals and actual construction activity, it does still seem like home building will be adding to gross domestic product over the next 18 months or so.”
Commonwealth Bank chief economist Michael Blythe said the upswing in construction would offset a significant part of the fall in mining investment.
“The trend data shows a clear peak in approvals,” he said.
“But we suspect, based on trends in construction related lending, that total approvals could hold around present levels for some time. It is positive for construction heading into 2015.”
St George chief economist Besa Deda said approvals remained close to historically high levels and well above the long-run average.
Construction would support the economy as it moved to being more reliant on non-mining industries for growth, she said.
“While housing activity is supporting the recovery in the domestic economy, depressed consumer sentiment and a resilient Australian dollar are headwinds for the economy,” she said.
Housing Industry Association senior economist Shane Garrett said approvals had fallen in seven of the past nine months.
“Despite Australia’s inadequate supply of housing, it appears that the usual suspects have brought the upturn in activity to a halt, these include factors like slow land release and barriers to the development of residential land,” he said.