The Urban Taskforce says the Australian Bureau of Statistics (ABS) approval figures for May are among the worst recorded.

The decline in new private sector home approvals by 7.8 per cent in May, comes on the back of NSW's second worst May approval figure in statistical history, and Queensland's worst May figure since 1987.

The Urban Taskforce's chief executive, Aaron Gadiel, said: "May saw a seasonally adjusted 15.3 per cent slump in NSW's private sector home approvals, on top of a 13.5 per cent fall in April.

"That's a 27 per cent fall since NSW's level of private sector home approvals stopped increasing in March.

"Although Victoria's private sector home approvals fell by a seasonally adjusted 18.4 per cent in May, the state still recorded its second best May in ABS record-keeping history.

"Queensland's modest 3.4 per cent seasonally adjusted increase followed a 34.3 per cent correction in April, but neither of these increases were strong enough to make-up for the decline the state's seen since May last year."

Gadiel said that the national seasonally adjusted approval figures for private sector detached houses were relatively flat in May, but higher density approvals fell by a massive 20.1 per cent.

"That's the single biggest monthly fall since October 2009," he said.

"Victoria saw a seasonally adjusted 45.8 per cent drop in private sector higher density approvals, although this followed 21.5 per cent and 53.9 per cent increases in the previous two months.

"NSW saw a seasonally adjusted 35.7 per cent drop in higher density approvals, following a 22.2 per centdrop in April.

"Victoria's May private sector higher density home approval rate was, more or less, at the same level it was in February, while NSW's approval rate has plummeted by 41 per cent in the same period."

Gadiel said that, in trend terms, NSW's private sector home approvals have declined for four straight months, Victoria's have fallen for eight straight months, Western Australia's has dropped for five straight months, while Queensland trended positively in May, for the first time in five months.

"It's clear that the seven interest rate increases we've seen since October 2009 have really hit the new housing supply across the country," Gadiel said.

"Not only has the 1.75 per cent jump in the cash rate hit home buyer confidence, the impact on holding costs and land values has made the development process more expensive.

"If the Federal Government's unable to pursue policies that will dampen interest increases, then it must urgently act to reduce the costs of supplying new homes.

"Otherwise the nation's supply of new housing will literally dry up before our eyes." Gadiel said that state governments needed to take a hard look at their own planning systems.

"For example, Victoria managed to approve 50 per cent more higher density homes in May than NSW, and nearly double the number of houses," he said.

"Clearly, in the face of interest rate increases, some states still maintain a better investment climate for new housing supply."