Building approvals hits 7-month low

Building approvals slumped to a seven-month low in May as interest rate crimp demand for dwellings.

AAP

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BUILDING approvals have slumped to a seven-month low in May as interest rate crimp demand for dwellings, economists say.

Australian building approvals fell 6.6 per cent to 13,412 units in May, seasonally adjusted, from an upwardly revised 14,359 units in April, the Australian Bureau of Statistics (ABS) said on Thursday.

In the year to May, building approvals were up 26.6 per cent.

The median market forecast was for building approvals to have been flat in the month.

It was the fewest number of dwelling approvals since October 2009.

ANZ economist Amber Rabinov said the fall in May followed a 11.4 per cent decline the previous month.

"They look pretty poor given the strong decline we had in last month's numbers," Ms Rabinov said.

"One positive to come out of the building approvals numbers is the step-up in private sector approvals compared to the sharp fall in the headline number."

Ms Rabinov said rises to interest rates and the removal of increased grants from the federal government have crimped demand for new housing.

The Reserve Bank of Australia (RBA) lifted the cash interest rate by 25 basis points to 4.5 per cent in May, its sixth such move since October 2009.

"That is certainly not helping and that is showing up in other housing market indicators," she said.

"We are seeing some of the heat come out of the market."

JP Morgan Australia economist, Ben Jarman, said the 18.8 per cent fall in private sector other dwellings, which include flats and townhouses, was the main contributor for the overall decline.

"Really the downside in building approvals was driven by that high density category which continues to be a volatile swing factor on a month to month basis," Mr Jarman said.

"It's probably not surprising that things got a bit tough on that front, again with the rate hike and also with financing conditions remaining a bit tight for developers in the high density space."