Work commenced on just 37,116 houses, apartments, units and other dwellings in the September quarter, down more than 17 per cent from a year earlier and the weakest reading since June 2012. Annual commencement dropped to 103,707 from 124,940 the previous 12 months.

Home building activity fell to almost half the peak of 67,141 commencements recorded in mid-2021.

The plunge in work on new homes has coincided with a massive acceleration in population growth, from just 0.14 per cent in June 2021 to 2.4 per cent two years later.

The resulting strong demand for a place to live has helped drive a huge markup in the cost of housing.

Home values jumped 8.1 per cent last year, according to property market analyst CoreLogic, more than offsetting a 4.9 per cent decline in 2022, which itself followed a stunning 24.5 per cent surge the previous year.

Over the same period, rents have grown at an annual rate of between 8.3 and 9.6 per cent.

The latest residential construction figures provide a sobering backdrop to the federal government's goal to build 1.2 million homes over five years.

Housing Minister Julie Collins admitted that it was "an ambitious target".

"[But] we need to be ambitious ... if we're going to turn around housing in Australia," Ms Collins told ABC radio.

The minister said the government had so far put $3.5 billion "on the table" to work with the states and territories to overhaul their planning and zoning rules and "get more homes on the ground, more quickly".

But opposition housing spokesman Michael Sukkar said the latest home commencement data showed the government's goal was "officially dead".

"After 20 months in government, Labor has failed to support the residential construction industry or implement any housing policy for first home buyers," Mr Sukkar said, and accused the government of "creating" the housing crisis because of the big influx of migrants.

The government projects that, after growing by 624,100 people last financial year, the population will expand by a further 454,300 in 2023-24, while commencements are running at an annual rate below 160,000 and the yearly approvals rate is a little more than 174,000.

Commonwealth Bank economist Harry Ottley said that although the number of homes being completed rose 8.2 per cent, persistent shortages of workers and materials have caused a large backlog.

But he said there were signs that demand for housing and constraints on construction were easing.

High interest rates, the growing cost of new homes, interest rate uncertainty and weak sentiment were weighing on the market for new homes, Mr Ottley said.

At the same time, supply chain problems that have hampered building activity are easing, he said.

"This is occurring at the same time commencements are falling, representing an unusual situation," the CBA economist said.

"One upshot of this could be that dwelling investment is more resilient than the number of commencements would suggest in the near term."

CoreLogic's head of residential research, Eliza Owen, said the constrained supply of new housing coming onto the market would help drive house prices and rents up.

"The lack of construction will keep a floor under property prices [and] demand will mean more upward pressure on rents in 2024," Ms Owen warned.

The property expert said changes in population growth had occurred much more swiftly than the ability of supply to respond, although recent developments including a trend to greater house sharing, slower population growth and government investment in social housing would all help to ease demand and improve supply.