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Residential building approvals surged by 27.3% m/m in May, with house approvals 9.0% higher in the month and flat/unit/townhouse approvals a strong 58.3% higher in the month. 

Total residential approvals increased 9.3% in annual terms.

Dwelling approvals were higher in the month across all states and territories. The most significant monthly increases were in the Australian Capital Territory (+101.6%, in original terms), Victoria (+31.8% m/m) and New South Wales (+25.1% m/m).

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Western Australia approvals were also higher in month (+24.8% m/m), however this followed very weak April month approvals (-47.2% m/m), and in level terms approvals remain well below long-run trend.

"The recent volatility of the approvals series suggests caution is needed in interpreting monthly data. For example, this month’s data reflects some one-off large private sector development approvals in New South Wales, Victoria and the Australian Capital Territory. In addition, the solid growth in Western Australia approvals only moderately unwinds some of the weakness in the April data, reflecting the impact of temporary adjustments to changes to the Building Act 2011, which came into effect in Western Australia on the 2 April," says a note on the matter from ANZ Bank.

Looking through the monthly volatility in the approvals data, the broad national trend decline in house approvals over the past year remains in tact, and should be of increasing concern to policy makers.

Falling interest rates have often been the trigger for cyclical recovery in home building.  Despite the positive impact of the May and June RBA rate cuts, tightening developer profit margins, weak buyer sentiment, falling home prices and tight credit conditions will limit any rebound in the near-term.

"Despite 2011 Census data showing the Australian population level to be lower than previously estimated (-294k), weak housing construction is driving further tightening of housing market balance pressures. While this month’s increase has trend dwelling approvals now running at an annualised completions rate of 134,000, dwelling supply will remain well below underlying demand for the foreseeable future.  Housing markets will tighten further and dwelling investment will continue to detract from economic growth," say ANZ.

 Non-residential building approvals increased by 71.0% m/m in May and (+46.7% in annual terms).  In trend terms, annual growth in approvals is now positive for the first time since October 2011.