Building approvals tumbled 17.2 per cent in July in the face of sky-high building costs and interest rate hikes.
The sharp decline was led by a lack of approvals for apartments, with a 43.5 per cent fall in private sector dwelling approvals recorded when houses were excluded.
House approvals remained flat, rising 0.7 per cent in July, according to the Australian Bureau of Statistics.
Daniel Rossi, head of construction statistics at the ABS, said building approval figures were at their lowest level since January 2012.
This follows a modest 0.6 per cent drop in June.
The fall was sharper than anticipated, with ANZ Research analysts Brian Martin and Daniel Hynes expecting a 10 per cent drop in July.
St George economist Jameson Coombs said successive interest rate hikes and the high cost of materials were likely softening demand for new housing.
The value of total building approved also fell in July, dropping by 12.9 per cent. This followed a 6.2 per cent decline in June.
Western Australia saw the biggest drop in the number of dwelling approvals - down 36.9 percent - followed by Victoria, which observed a 17.4 per cent drop.
NSW, Tasmania and Queensland also saw significant falls.
South Australia, by contrast, recorded a 19.2 per cent rise in dwelling approvals.
Consumer confidence also eased slightly last week despite no signs of a spending slowdown.
Sentiment softened 0.7 per cent last week following two consecutive weeks of gains as measured by the weekly ANZ-Roy Morgan survey.
ANZ economist David Plank said the results of last week's survey were mixed.
There was a sharp 5.5 per cent drop-off in the indicator that asks whether it's a "good time to buy a major household item" but sentiment about current and future economic conditions lifted.
Despite ongoing interest rate hikes and soaring inflation, consumers have regained confidence in "current economic conditions", with the sub-index lifting by 24.5 per cent in the past three weeks.
However, all sentiment sub-indices remained well below the long-run average, with only "future financial conditions" in positive territory.
Mr Plank said consumers were likely to remain cautious until wages started growing in real terms.
"It is important to remember that this caution hasn't actually been reflected in a pullback in spending - at least not yet," he said.
This follows sharper-than-expected growth in retail sales.
Sales rose 1.3 per cent in July - sharply higher than the 0.3 per cent increase expected by most analysts - suggesting consumers are still spending despite rising living expenses.
Speaking to ABC Radio on Tuesday about Australia's economic challenges, Treasurer Jim Chalmers said the government wanted to keep people in jobs and was aiming to keep unemployment "with a three or a four in front of it".
However, he said the low unemployment figure didn't tell the whole story.
"Youth unemployment is higher than that, we've still got underemployment in areas, we've got problems around wages growth that's been a really big challenge in the economy for the best part of a decade now," he said.
Dr Chalmers said "responsible, sustainable but strong" wages growth remained a priority and would be up for discussion at the jobs and skills summit later in the week.
He said investing in people and upskilling was the key to unlocking wages growth.
