ABS building approvals rose more than expected in July 2016, following two months of declines.

Dwelling approvals rose 11.3% for the month. House approvals fell 0.6% in July, while 'other dwellings' soared 23.4%, just shy of record highs.

The gains were driven by the May rate cut, said CommSec chief economist, Craig James.

"The number of dwelling approvals surged in July, no doubt driven by the May rate cut and in general the super low interest rate environment. The lift in activity was driven by the lumpy apartment approvals which surged by over 23% in just July alone."

James said apartment approvals are almost at the record levels seen last year.

"Apartment approvals now hold less than 1% away from the record highs reached in May 2015," he said.

HIA Chief Economist, Dr Harley Dale, said semi-detached and townhouse approvals were a sector of 'multi-unit' construction experiencing sold growth.

“There is some further spark to semi-detached/townhouse dwellings - this is a market to keep a positive eye on.”

But Dale warned that most of the gains were experienced in NSW and Victoria.

“The short term horizon is narrow from a geographical perspective – take away New South Wales in particular, but also Victoria and the light is not so bright," he said.

Dale said the result shows there is still a considerable amount of work to come through the construction pipeline. 

“Today’s result... does remind us about the uncertain outlook the new home building sector faces due especially to the record pipeline of work yet to be started for medium/high density dwellings,” he said.

The stronger-than-expected data raises the question of whether or not developers are building too many apartments.

UBS economist Scott Haslem told The Australian Financial Review, "Is this increase in approvals today led by demand or by supply? If it's led by demand, then we're all okay. If it's led by supply there may be cheap apartments to buy in the next few years."

Glenn Byres, the Property Council of Australia’s Chief of Policy and Housing, said the result was good news for housing affordability, but was unlikely to be sustained due to changes in lending to investors and foreign property buyers.

“Mike Baird’s decision to tax housing supply backed by foreign investment risks is adding to the woes of a state with the nation’s worst planning system and biggest housing deficit,” said Byres.

In July 2016, total seasonally-adjusted new home building approvals increased by 27.8% in New South Wales, and also increased in Western Australia (+17.5%), Queensland (+12.8%), and Tasmania (+7.8%). Building approvals fell in July 2016 in South Australia (-15.6%) and were also down by 5.5% in Victoria. In trend terms, approvals fell by 3.2% in the Northern Territory and by 2.5% in the Australian Capital Territory.

See also:

Botany off-the-plan sales are slowing

Building approvals data confirms softening housing market

Building approvals slump suggests clouds on the horizon