Housing starts declined in the March quarter, a concerning update notwithstanding recent data indicating a modest recovery is likely in the residential housing sector.

On a seasonally adjusted basis, ground was broken on 38,702 houses and multi-residential units around the country, down 5.4 per cent from the previous quarter and representing the third lowest level of starts on record since the September quarter of 2009.

While the sector has picked up since the worst of the trough in late 2011/early 2012 – over the 12 months to March, ground broke on 155,705 dwelling units, up from 147,508 in the year prior to that – Housing Industry Association chief economist Harley Dale says the latest figures highlight continued challenging conditions in the industry.

“Even allowing for a higher GFC stimulus-induced peak in 2010, the subsequent drop in dwelling commencements (housing starts) over 2011 and 2012 remains significant,” Dale says.

“The number of dwelling commencements fell in five out of six states in the first quarter of 2013, while a flat result was recorded for New South Wales. On a six month annualised basis, dwelling commencements continue to track well below the housing requirements of the population in New South Wales, Queensland, South Australia, Western Australia, and the Northern Territory.”

Dale acknowledges that forward looking indicators show signs of upward momentum, suggesting that lower interest rates and government home buyer incentives are having an impact. He says, however, that a broader concern revolves around Australia not building enough homes to meet longer term population needs – a phenomenon Dale says is underlined by the overall modest rate of new housing starts.

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In addition to new housing, the figures also point to an easing in renovations activity, with the value of work on major additions and alterations down 9.9 per cent compared to the same period last year and having fallen by around 17 per cent since their mid-2011 peak – albeit from a high base.

The HIA says soft conditions in this sector are likely to prevail throughout the remainder of the year.

On a positive and perhaps surprising note, however, the value of work in the system continues to grow.

At 138,707 (up 5.1 per cent year on year), the number of dwelling units under construction throughout the country sat at record levels.