Building approvals figures, released on Monday, defied predictions and fell to their lowest levels since 2013.
The ABS data was released on the morning of the banking royal commission final report, adding to growing housing market unease.
Approvals declined by 8.4 per cent in December from a month earlier, and by 22.5 per cent from a year earlier.
Apartment approvals was hit even harder: experiencing a 40.1 per cent fall for the quarter. Approvals to build apartments fell by 18.8 per cent in December, following an 18.3 per cent drop in November.
“The boom in approvals of apartments is now over,” HIA principal economist Tim Reardon said.
“Apartment approvals averaged almost 30,000 per quarter for the three years of 2015-17, in stark contrast to the 17,778 record for this December quarter.”
The largest falls were seen in New South Wales, Victoria and Queensland.
Reardon says the record volume of new homes built over the past four years is one of the reasons house prices are returning to more affordable levels.
“Housing affordability is about ‘supply and demand’ and for most of this century there have been constraints on new home building that have limited supply and forced up prices,” he said.
Last year was the fifth consecutive year where the industry commenced construction of more than 200,000 homes and it was a record year in terms of new dwelling completions.
Reardon also said the new home building constraints were also behind Sydney’s mammoth growth in the five to six years leading up to 2017.
“More important than house prices, the stalling of rental price inflation over the past year is the most important indicator that tells us that the pent-up demand for new housing in Sydney and Melbourne has now been met by a record volume of new housing.
Master Builders Australia last week said it expects houses and units built in Australia to drop by 25 per cent from a construction peak three years ago through to 2022-2023.
But while the nation’s population growth remains solid, Reardon expects the current slowdown in building activity “will remain modest”.
In good news for renters, Reardon said we’ve now seen 14 consecutive quarters where rental price growth has been below inflation.