New home lending deteriorated again in the first quarter of 2011, according to the latest ABS housing finance figures.

According to Master Builders Australia recent rate-rises and weak consumer confidence are threatening to derail a housing recovery, while the HIA says the latest figures highlight an urgent requirement for government action.

March 2011 ABS housing finance figures showed a decline of 1.5 per cent.

Over the March 2011 quarter the total number of loans for construction and purchase of a new dwelling dropped by 12 per cent to reach its lowest level since the September 2008 quarter.

HIA Chief Economist, Dr Harley Dale, said: “The appropriateness of steady interest rates is clearly signalled by today’s result. The clearest signal in today’s figures, however, is the need for Federal and state governments to step up to the plate and deliver on stimulus and reforms to reduce the cost of new housing."

“The loss of momentum in the housing supply reform process has combined with heightened interest rate pressure to deal a telling blow to new residential construction at the very time when a sustained boost to supply was the required outcome,” claimed Dale.

Peter Jones, Master Builder’s Chief Economist, said, "The negative trend evidenced in the housing finance numbers is not primarily due to weather events and has a lot to do with household caution in the wake of recent rate rises by the Reserve Bank."

"Loans for construction of dwellings and purchase of new dwellings, combined, were flat in March as the residual impact of higher interest rates works against a recovery in residential building."

"A positive sign was the pick up in dwellings financed by first home buyers, as was the increase in finance commitments for construction of dwellings for rent or resale by investors."

He said, "The best possible interpretation of the housing finance numbers is that the decline suffered in 2009-10 has been arrested, but that the pace of recovery will be slow."

"Still suffering from the credit squeeze and bank lending practices, it is critical for the interest rate sensitive residential building industry that there is an extended pause in Reserve Bank monetary policy."

"In an overarching sense, the weak underlying level of housing finance must be of concern to the Federal Government, as it signals that the residential building industry will be unable to meet the serious undersupply of housing that has arisen, thereby risking higher rents and house prices as more people chase less stock."

He said, "There is an urgent need for governments of all persuasion to address supply side policy failures, otherwise there will be dire consequences for housing affordability."

Master Builders will continue to push for the need to address inefficient developer charges, land release regulations and the approvals process as part of reforms to remove impediments affecting the supply of housing.

Loans for construction fell by 1.1 per cent in March 2011 and were down by 8.1 per cent over the quarter. Despite a 2.4 per cent gain in loans for the purchase of new dwellings in March, over the quarter the number of loans dropped by 20.1 per cent.

In seasonally adjusted terms, in the March 2011 quarter the number of owner occupier loans for new housing fell across all states and territories.

New housing loans fell by 10.2 per cent in New South Wales and were down by 17.4 per cent in Victoria, 14.9 per cent in Queensland, 3.4 per cent in South Australia, 0.5 per cent in Western Australia, 13.5 per cent in Tasmania, 12.1 per cent in the Northern Territory, and 23.4 per cent in the Australian Capital Territory.