Building approvals low on lack of stimulus: economists

Building approvals fell seven per cent to 14,045 units in January, seasonally adjusted, from an upwardly revised 15,106 units in December, the Australian Bureau of Statistics (ABS) said on Tuesday.

It was the series' first recorded fall since August 2009.

Most economists had expected a 1.0 per cent rise in approvals in January.

Economists also say home construction is set remain below its long-term average growth in 2010 as the sector adjusts to more interest rate rises and further reduction in government stimulus.

Approvals for apartments and semi-detached homes fell 29.1 per cent In January but private sector homes edged up 0.3 per cent, the ABS data showed.

In the year to January, total building approvals were up 47.6 per cent on the same period 12 months earlier.

ANZ economist Alec Joiner said the construction industry faced a tight 2010 as the federal government and the Reserve Bank of Australia (RBA) continues their staged withdrawal of stimulus.

"This data ... provides a strong indication that the reversal of last year's stimulatory policy settings is starting to curb new housing activity," Dr Joiner said in a research note.

He said higher interest rates were likely because of the outlook for solid economic growth and continued strong population growth in 2010.

And higher rates meant residential building levels were likely to remain below the long-term average, he said.

"We expect further tightening of monetary and fiscal policy through 2010 and continued tightness in the housing market, with solid house price growth and increased pressure in the rental market with lower vacancy rates."

National Australia Bank NAB senior economist David de Garis said a larger than expected fall in building approvals was due to the volatile private sector other-dwellings category.

"In all the leading indicators the trend there is still positive for at least now," he said.

"The trend in residential building approvals remains positive, with approvals in trend terms running at an annual rate of 176,100 in January, much closer to underlying population growth requirements."

However, Housing Industry Association (HIA) senior economist Ben Phillips said the January slump was a warning that a housing recovery was not a given.

"The result indicates that the units and semi-detached market is still bearing the brunt of tight credit conditions. Interest rate increases over 2010 will only exacerbate this situation," he said.

"The poor start to 2010 should be a reminder that a housing recovery is not a given.

"Government support, through the social housing initiative and the first home buyers boost, being fazed out or removed in 2010, interest rates will be a key factor in determining the fortunes of the home building industry."

The federal government reduced the enhanced first home owners grant from $14,000 to $7000 for newly constructed homes from January 1.

The enhanced rate was reduced from $21,000 to $14,000 for newly constructed homes on October 1.

On Tuesday the Reserve Bank of Australia raised the cash rate a further 25 basis points to four per cent, its first rate rise for calendar 2010.

This followed rate rises of a similar amount each in October, November and December last year.