Another big fall in dwelling approvals in February illustrates the tentative nature of the residential building recovery and highlights the need for government action to remove supply-side impediments affecting housing affordability, according to Master Builders Australia, the peak body for the building and construction industry.

ABS Building Approvals show that the total number of dwellings approved fell 7.4 per cent in February 2011, in seasonally adjusted terms, after falling 11.6 per cent in January.

According to the ABS, Victoria (-23.1 per cent), Queensland (-11.8 per cent) and Western Australia (-7.4 per cent) recorded fewer dwelling approvals this month while Tasmania (44.6 per cent), South Australia (35.8 per cent) and New South Wales (7.7 per cent) recorded increases in seasonally adjusted terms.

Private sector houses approved rose 0.2 per cent in February with rises in New South Wales (7.4 per cent), South Australia (4.8 per cent), Queensland (1.1 per cent) and Western Australia (0.4 per cent) while Victoria fell (-6.9 per cent).

The value of total building approved rose 13.7 per cent in February in seasonally adjusted terms. The value of total residential building fell by 2.9 per cent while non-residential building rose by 59.3 per cent.

Widespread flooding in the eastern states, particularly Queensland, and other recent natural disasters have not adversely affected participation by providers in the Building Approvals collection or the quality of estimates in this release. However, these events may have had an impact on the number of approved dwellings and the value of approved work in February 2011.

Master Builders Chief Economist Peter Jones said "The latest setback is to some degree due to weather events but still has a lot to do with household caution in the wake of rate rises by the Reserve Bank."

"The much anticipated upswing in residential building activity is in doubt as householders face not only higher mortgage repayments but artificially high barriers to the purchase of new or newly built houses in the form of inefficient developer levies."

He said, "Residential builders continue to face financial constraints associated with the credit squeeze that dampens investor-driven activity and recovery in approvals of units and apartments."

"A long and strong residential building upturn is desperately needed in Australia given the underbuilding of the past seven years."

"The current annualised rate of 144,000 approvals needs to lift by at least 50 per cent if the level of residential building is to make any inroad into the ever-increasing supply shortage."

He said "Government policies are constraining the ability of housing supply to meet population needs and without reform, the problem of housing affordability will only get worse."

"Reputable commentators including the Housing Supply Council, Henry Tax Review and Reserve Bank Governor have stated that unless there is urgent reform to address bottlenecks the strong supply response needed to meet Australia's housing shortage will not eventuate.