Australia housing construction boom shows signs of slowing down

SYDNEY (Reuters) - Australia is witnessing a cooling off in its biggest-ever home-building boom as approvals for new projects sank 17.2 percent in April, a turnaround that could undermine policymakers’ hopes for solid economic growth over the next two years.

A labourer stands in the wooden frame of a house under construction in the seaside suburb of Greenhills Beach in Sydney, Australia May 25, 2017. REUTERS/Jason Reed

Building approvals have been on a decline since last August, with the once-booming apartment sector the biggest hit, data from the Australian Bureau of Statistics shows.

Data published on Tuesday shows a better-than-expected gain of 4.4 percent in April, but it follows a hefty loss of 10.3 in March.

Multi-unit approvals rose 9.6 percent in April from March when they slumped more than 18 percent. Approvals are still down an annual 26.5 percent.

Analysts say the data indicates Australia’s biggest-ever construction boom is slowly unwinding.

“While the monthly update was more positive than expected the slowdown theme remains clear,” said Matthew Hassan, senior economist at Westpac Banking Corp.

“New dwelling investment is expected to enter a decline from late this year, becoming a material drag on growth.”

The Reserve Bank of Australia (RBA) has been counting on continued strength in home building to offset a lingering drag from the end of a mining investment boom.

Earlier this month, the RBA even upgraded its forecast for gross domestic product (GDP) growth by 25 basis points for mid-2018 to 2.75-3.75 percent.

Growth in the A$1.7 trillion economy is expected to accelerate to between 2.75 percent and 3.75 by June 2019.

But economists are not so optimistic.

“It is hard to see that kind of growth,” said Michael Turner, strategist at RBC Capital Markets.

“We are a bit more circumspect. Consumer spending is still a bit more conservative and construction is slowing down. We’re seeing GDP of below 3 percent over the next two years.”

Reporting by Swati Pandey; Editing by Eric Meijer