Building approvals shrug off rate rises

Australian home-building approvals rose in December as government grants to first-time buyers helped the housing market shrug off a record three straight interest-rate increases.

The number of permits granted to build or renovate houses and apartments increased 2.2 per cent from November, when they gained a revised 10.4 per cent, the Bureau of Statistics said. The median estimate of 19 economists surveyed by Bloomberg was for approvals to be flat for the month.

The increase in building approvals suggests the construction industry will help strengthen the nation's economy, which was one of the few to skirt the global recession amid a rebound in consumer and business confidence. Central bank Governor Glenn Stevens left the benchmark lending rate unchanged this week for the first meeting in four to gauge the impact of the bank's record three straight monthly increases last quarter.

''We are going to see a housing boom now over 2010,'' said Brian Redican, a senior economist at Macquarie Group. ''When people build their houses, they are going to need more furniture and electrical goods, so that medium-term story for retail is not as bad either.''

Building approvals rose 53.3 per cent from a year earlier, today's report showed. Economists tipped a 38.2 per cent gain.

Last year's jump in approvals was stoked by Prime Minister Kevin Rudd's decision to increase grants to first-time buyers of newly built dwellings to $21,000, and after the central bank slashed borrowing costs by a record 4.25 percentage points between September 2008 and April 2009 to a half-century low of 3 per cent.

Stevens boosted the benchmark lending rate by a quarter point in October, November and December to 3.75 per cent.

As information about the impact of the bank's previous increases ``is still limited, the central bank board judged it appropriate to hold a steady setting of monetary policy for the time being,'' Stevens said on Feb. 2.

Growth in approvals may slow in coming months after the government cut the grants for first-time buyers to A$7,000 at the start of this year, and amid speculation borrowing costs may rise further.