Building approvals dropped nearly 10 per cent to a five-year low in November as investors and developers took a step back amid wider housing market anxiety and tighter lending conditions.
Total approvals fell 9.1 per cent for the month, and were down 32.8 per cent for the year, according to seasonally adjusted data from the Australian Bureau of Statistics on Wednesday.
NAB economist Kaixin Owyong said the data showed builders were unsurprisingly hesitant to add to the residential pipeline in an environment of an 18-month price slide, particularly in Sydney and Melbourne.
"(It is) consistent with business conditions in the construction sector declining from late 2017 peaks," she said.
"It's worth remembering, that there's still a large pipeline of work in place and business conditions remain at high levels - although data suggest builders aren't working through the pipeline as quickly as they were two years ago."
Private sector house approvals fell 2.6 per cent for the month while other dwellings - including units, townhouses, and apartments - fell more sharply, down 17.9 per cent.
Meanwhile, unit and townhouse approvals were down 53.9 per cent on the same time last year, while house approvals fell 6.4 per cent.
Housing industry representatives said the decline in approvals showed a credit squeeze continued to weigh on the sector.
"The credit squeeze is happening at the behest of the banks' own lending practices which have been tightened above and beyond APRA's requirements," Housing Industry Association economist Diwa Hopkins said.
"Policy makers and lenders alike need to be cognisant that ordinary home buyers are now facing blow-outs in loan processing times and also much greater rates of flat-out loan rejection."
Total seasonally adjusted dwelling approvals in November fell in Victoria (14.6 per cent), NSW (9.3 per cent), Western Australia (7.3 per cent), South Australia (4.6 per cent) and Queensland (4.3 per cent).
Tasmania was the only state to record an increase in approvals (30.6 per cent).
The Aussie dollar slumped on the release of the data before recovering to 71.57 US cents amid wider market optimism.
On Monday, Moody's Analytics predicted Sydney's housing market will fall by another 3.3 per cent in 2019, while Melbourne houses are tipped to fall by six per cent.