Building approvals plunge 13 per cent, suggesting construction boom is unravelling

The latest housing approvals figures are "the clearest sign to date that Australia's high-rise driven dwelling construction boom is starting to turn down," Westpac economist Matthew Hassan says.

ABS data released on Wednesday morning showed total approvals fell 13 per cent in October, on a seasonally adjusted basis, with September's 8.7 per cent decline revised to a 9.6 per cent drop. The consensus forecast among economists was for a 1.5 per cent rebound.

Building approvals have now dropped in each of the past four months.

But the very volatile high-rise approvals figure showed a monthly decline in October of about 40 per cent, hitting a two-year low.

And it wasn't just apartment towers. Detached house approvals dropped 3.4 per cent - "a sizeable fall for what is usually a much more stable component and one that should have seen more support from recent rate cuts", according to Hassan.

"Overall the update is unambiguously weak and puts a clear marker in the ground showing the construction cycle is now turning down," the Westpac economist says.

A drop in building approvals will take some time to translate into lower construction activity. High rise apartments, for example, can take two to two-and-a-half years to complete. So the downturn on this segment won't hit activity until "well into 2018", Hassan reckons.

"Although very early days, the magnitude of today's weakness means approval volumes are on track to decline sharply" in the final three months of the year, JP Morgan economist Tom Kennedy says. He adds that this is consistent with his team's view that "the impulse from residential investment to real GDP should fade in 2017".