Home building approvals have suffered their biggest slide in three-and-a-half years as Victoria's love affair with high rise apartments begins to wane.
The number of approvals for homes, apartments and townhouses nosedived by 12.7 per cent in November, far outstripping the three per cent dip expected by economists.
The result more than offset the increases during the previous two months and marked the steepest monthly decline since July 2012.
The catalyst for the weaker-than-expected result was a 23 per cent slide in approvals for apartments and townhouses, the Australian Bureau of Statistics data showed on Thursday.
Victoria bore the brunt of the downturn, with total approvals falling by more than a third while those for units and townhouses dived a massive 63 per cent.
Commonwealth Bank of Australia economist Gareth Aird says the slump in Victoria is not necessarily a bad thing, given the recent boom in high-rise apartments in Melbourne.
"There has been a growing risk of apartment saturation in Melbourne so a pullback in approvals is prudent for the Victorian housing market in the long run," he said.
By contrast in NSW, where housing supply has been less responsive to demand, approvals rose by one per cent.
Nationally, building approvals were down 8.4 per cent for the 12 months to November.
Mr Aird said judging from the latest data and several other housing market indicators, it's safe to say building approvals have peaked.
"It's clear that conditions are cooling," Mr Aird said.
"While residential construction will remain buoyant deep into 2016, its capacity to generate jobs will wane."
JP Morgan economist Ben Jarman predicts housing construction growth to slow this year and in 2017.
"We've had three good years of new dwellings creation and building approvals, and we're now seeing population growth start to fade a bit," he said.
"It just makes sense that these numbers have probably topped out."
At the same time, the positive wealth effect for consumer spending from rising property prices in Sydney and Melbourne is also fading, AMP Capital Investors chief economist Shane Oliver said.
"Both mean that the contribution to economic growth from housing is set to slow in the year ahead," Dr Oliver said.
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