New figures point to Australia's home building boom starting to taper off at the end of this year but new housing supply and recent regulatory measures should keep a lid on prices, economists say.
The number of new home approvals slumped 13.4 per cent to 16,484 in March, widely missing market forecasts of a 4.5 per cent fall, according to data from the Australian Bureau of Statistics.
The fall was broad-based, with private sector house approvals down 4.3 per cent in the month and the "other dwelling" category, which includes apartment blocks and townhouses, plummeting 22.5 per cent.
Citi economists said high-rise apartment approvals nose-dived 50 per cent in March and the fall in detached house approvals indicated a housing sector slowdown will now hit sooner than expected.
"It suggests the dwelling investment cycle is turning a little quicker than previously anticipated with a contraction now more likely to start in late 2017 than in 2018," Citi's team said.
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However, CommSec chief economist Craig James said a fall in housing supply growth over the next few quarters will not necessarily trigger large price increases.
"It is important to keep in mind that that over the next couple of years there will be a significant lift in supply. And coupled with tighter lending standards this should ensure a more balanced environment," he said.
"In essence home price growth is likely to be more contained over the medium term."
AMP Capital economist Diana Mousina said declining approvals, when combined with weak non-mining business investment and falling mining investment, could potentially weigh on overall economic growth.
"The signal from the government at this stage is that the Federal Budget (released tomorrow) will give greater allocation to infrastructure investment which would be coming at a very opportune time," she said.
