The sharp fall of national dwelling commencements in the September quarter reinforces the urgent need for governments to address supply side policy failures, according to the peak building and construction industry association.

The Australian Bureau of Statistics today reported the number of housing starts fell 13.2 per cent in seasonally adjusted terms in the September quarter.

Mr Peter Jones, Master Builders Australia Chief Economist said, "The recovery in residential building will be shortlived unless policy changes are implemented."

"The bounce-back in dwelling commencements this year has merely offset the decline last year in the wake of the global financial crisis and is in danger of stalling."

Mr Jones said, "Builders have reported an across the board slowing in sales, including sharp declines in some states, particularly Queensland."

"A period of interest rate stability from the Reserve Bank will be critical to ensure that an upswing in the interest-rate-sensitive residential building sector becomes entrenched."

The underlying level of dwelling starts must be of concern to the Federal Government, as it prevents the residential building industry from meeting the undersupply of housing, risking higher rents and house prices as more people chase less stock."

"Australia needs a long and strong housing upturn to overcome a massive shortfall in dwellings that has developed."

"Three or four years building 200,000 plus dwellings per annum is needed to not only meet the demands of a growing population, but to make inroads into the massive deficit of housing that has accrued through a long phase of underbuilding."

Mr Jones said, "Unless there is urgent reform to address bottlenecks, the strong supply response needed to meet demand will not eventuate, with dire consequences for housing affordability."