The cooling Australian housing construction sector may not be able to provide new jobs and economic activity much longer, economists say.
Approvals for the construction of new homes fell 7.5 per cent in January, with a 6.0 per cent fall in detached dwelling approvals and 10.8 per cent drop in the 'other dwellings' category, which includes apartment blocks and townhouses.
In the 12 months to January, building approvals for the construction of new homes fell 15.5 per cent, Australian Bureau of Statistics data showed on Tuesday.
Housing Industry Association senior economist Shane Garrett says the industry was hit by a number of unfavourable developments in late 2015, with banks raising mortgage rates, and credit conditions tightening for investors, particularly foreigners.
"This has made it more difficult to deliver new housing supply and today's figures seem to bear this out," Mr Garrett said in a statement.
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"It is, therefore, vital that policy settings and credit conditions become more focused on the consistent delivery of the required volume of new housing supply over the long term. We're just not seeing this at the moment."
JP Morgan economist Tom Kennedy said the figures were consistent with the idea that building approvals peaked in the middle of 2015 and had been sliding since.
"We have seen some big rises and some big falls, but today's figures show a continuation of that underlying downward trend," he told AAP.
January's 7.5 per cent fall in building approvals follows a 9.2 per cent rise in December, which in turn was preceded by a 12.4 per cent drop in November.
Westpac senior economist Matthew Hassan said the downward trend was initially driven by a slowing construction of higher density high-rises, but detached homes were also now cooling off.
"The monthly volatility makes it difficult to pinpoint how much of a slow-down is coming through, so we're just going to have to watch this one," Mr Hassan told AAP.
ANZ economists said the narrowing pipeline of planned residential construction was consistent with their view that the downturn was strengthening.
"The Australian economy is unlikely to be able to rely on building construction to support jobs growth and economic activity for much longer," they said in a note.
However, Mr Kennedy believes Reserve Bank of Australia officials won't pay too much attention to the building approvals data at their monthly rates meeting on Tuesday.
"They will be keeping an eye on the longer-term trend and it probably will cool a bit in 2016," the JP Morgan economist said.
"But that's not necessarily a bad thing given that we've seen quite a lot of construction in the past two years.
"Perhaps a bit of moderation, a bit of a pull-back, is what that sector needs at the moment and is the best thing for financial stability going forward."
