Construction approvals have suffered their largest setback since September 2014 as the huge surge in high density dwellings eases.

Approvals for the construction of new homes fell 8.2 per cent in June, way worse than market expectations of a 0.9 per cent fall.  Over the 12 months to June, building approvals were up 8.6 per cent, the Australian Bureau of Statistics said.

Approvals for private sector houses rose 4.3 per cent in the month, and the ‘other dwellings’ category, which includes apartment blocks and townhouses, was down 20.4 per cent.  JP Morgan economist Tom Kennedy said the underlying details in the building approvals figures aren’t that bad, but he doesn’t expect it to significantly strengthen again this year.

“It’s unlikely that you’ll see any further increase in approvals volumes, you’ll probably see them hover around the current levels for a while,” he said.

“But there are disincentives for investors, they will pull back and reconsider their options.”

CommSec economist Savanth Sebastian said the fall in the number of building approvals was not a surprise given the recent decline in the number of home loan approvals.

“We’ve only had one month, it is still a hot sector but there does seem to be a few cracks appearing,” he said.

June 2015 approvals for apartments and non-residential buildings in NSW have dropped 20% since February 2015, says the Urban Taskforce.

“A drop in the number of apartment approvals in the first half of this year along with a similar drop in the value of non-residential approvals in NSW is a worrying signal,” says Urban Taskforce CEO, Chris Johnson. “Higher Density (Apartment) approvals in June 2015 were 2,589 which is 20% lower than the February 2015 figure of 3,191 approvals.”

“Apartment approvals can go up and down as individual projects can include hundreds of apartments but we have seen a downward trend over each of the months of March, April, May and June. We will need to watch the figures for the next few months to see if the trend continues.”

“The downturn in apartment approvals could also be a signal that sites are getting harder to find that give economically feasible results. Many sites are now requiring Planning Approvals and where the local council is not supportive the project must go through the government’s Pre-Gateway assessment which averages 234 days. If the downturn in approvals continues, the government may need to  instigate a priority assessment process for the rezoning of difficult inner city sites.”

“Non-residential approvals in NSW have dropped from $802 million in February 2015 to $609 million in June 2015 which is a drop of more than 20%. Again the drop has been consistent over the months of March, April, May and June.”

“Detached housing approvals have risen from 2122 in February 2015 to 2,365 in June 2015 and this increase partially offsets the drop in apartment approvals over the same period.”