Building approvals are at a three-year high, showing the housing market is alive and kicking while stoking hopes of a construction boom.

Approvals for the construction of new homes rose 14.4 per cent, seasonally adjusted, across Australia in September – five times higher than economists’ expectations of a 2.8 per cent rise – and rose 18.6 per cent over the past 12 months, the Australian Bureau of Statistics said on Thursday.

The number of houses and apartments approved last month was 16,318, the highest figure since March 2010, said Housing Industry Association senior economist Shane Garrett.

“The main message from today’s figures is that the Reserve Bank’s interest rate cuts over the past two years are helping to support activity on the ground,” Mr Garrett said.

“However, it is worth remembering that the growth in approvals is dominated by multi-units rather than houses – the recovery is not yet as broad-based as we would like.”

CommSec chief economist Craig James said housing would be the key to rebalancing the economy as the mining investment boom winds down.

“Housing is taking the baton from mining and will drive the economy over the next year,” Mr James said.

“The early indicator of home construction is trending higher, pointing to increased activity for builders, tradespeople, material suppliers and housing-dependent businesses.

“Multiplier effects from housing on the economy are significant, meaning many sectors will share in the gains of the building boom.

“We expect home building to lift further over the coming year in response to firm population growth, low interest rates, government grants for new home construction and tight rental vacancy rates.”

Mr James said increased house supply was important for keeping down growth of existing house prices.

National Australia Bank senior economist Spiros Papadopoulos said that although the September rise was mainly driven by the approval of multi-unit buildings, it showed that the housing market was continuing to recover.

“There are more jobs and labour resources that go into building one house than building one apartment,” Mr Papadopoulos said.

“You’d much rather have, from a dwelling investment perspective, 5,000 new homes being built than 5,000 apartments because there’d be a lot more job creation.

“It’s just a question of these approvals turning into activity and employment creation and everything else so we get a bigger contribution from dwelling investment into the national accounts figures through 2014.

“We really want to see these homes being built, not just approved, before we start to get confident about a strong upward construction cycle.”