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It looks like Australia's residential construction boom has peaked

Blocked. (Photo by Jonathan Daniel/Getty Images)

Building approvals fell sharply in March after a rise in February, in a clear sign that the residential construction boom has reached its peak.

Seasonally-adjusted building approvals fell by 13.3% in March to 16,484. Housing approvals dropped 4.8% and there was a significant 21.8% fall in construction approvals for new units.

The declines in March more than off-set the increases in the previous two months.

This chart from ANZ shows the monthly seasonally-adjusted and trend movements for both house and attached housing approvals going back to 1990:

According to Pete Wargent from AllenWargent Advisory, new monthly construction approvals have fallen from almost 241,700 at the peak to around 225,400.

Most of that drop has been in construction approvals for taller apartment blocks four stories or higher.

Wargent said that approvals for that type of construction have fallen from a peak of 77,900 in October 2015 to 67,600 in March 2017.

The decrease in approvals for four-story apartment buildings is most apparent in Sydney and Brisbane, which makes sense given the concern around over-supply in those markets. This chart from ANZ shows the continuing downward trend in those two cities:

Despite the fall in new approvals, ANZ economist Daniel Gradwell said that the existing backlog of work should keep the construction sector busy for some time.

“The drop in approvals supports the conclusion that we have already seen the peak in building approvals. Nonetheless, there exists a tremendous backlog of work in the housing sector, with some 220,000 dwellings valued at $37 billion currently under construction nationwide,” Gladwell said.

“While new building approvals are clearly lower than during the 2015-16 peak, this backlog of work will ensure that actual construction activity remains elevated for some time yet.”

Wargent was a little more reserved in his assessment, noting that the challenge for policy-makers will be to manage a transition from construction sector employment to employment on infrastructure projects as the residential construction boom starts to cool.

“In my opinion, while there self-evidently remains a huge number of dwelling units under construction, particularly apartments, the actual level of construction activity is set to slow imminently, potentially undermining growth forecasts,” Wargent said.

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