AAP

Stronger than forecast building approvals numbers for September are pointing to increased activity in the construction sector, despite the paring back of the first home owners grant and difficulties in obtaining building finance, economists say.

Australian building approvals rose 2.7 per cent to 12,476 units in September, seasonally adjusted, from an upwardly revised 12.145 units in August, the Australian Bureau of Statistics (ABS) said on Wednesday.

Approvals for private sector houses rose by 0.3 per cent in the September month, significantly below the average rate this year of three per cent per month.

As well, approvals for other dwellings - including apartments - surged 14.6 per cent, and helped boost the overall result.

The market had forecast overall building approvals to rise by two per cent in the month.

JP Morgan economist Helen Kevans said the strong rise in the other dwellings segment was mostly responsible for the rise in total approvals.

"While this was a very strong result for the housing sector, the series traditionally is volatile, and has been particularly so over the past year owing to difficulties in obtaining finance for larger projects," she said.

In the year to September, building approvals were up 11.7 per cent.

Ms Kevans noted that the strength in approvals for houses throughout the year to the end of September was closely tied to the federal government's decision to extend the expanded first home buyers (FHBs) grant.

RBC Capital Markets senior economist Su-Lin Ong said the data are likely to show some "fiscal fade" in the coming months following the paring back of the grant at the end of September and a return to the original grant by year end.

"However, the most recent housing data including today's 2.7 per cent gain in building approvals suggests that any moderation will be coming from a higher base," she said.

Meanwhile, Housing Industry Association (HIA) chief economist Harley Dale said while a recovery in new home building was underway, its scale looked insufficient to address a shortage of new housing stock.

"Supply side constraints including bottlenecks in the building approvals process, and a lack of breadth to the recovery are preventing new construction from growing at the rate required to satisfy a rapidly growing population," Dr Dale said.