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Australia's new homes market will only recover if the Government Takes Action, the Housing Industry Association has warned.

 Building Approvals fell sharply in July 2012 due to a big decline for non-detached dwellings, the HIA revealed this week.

"Today's Building Approvals release provides a weaker than expected update on new home building and the wider non-mining economy," said Chief Economist Dr Harley Dale.

"The 40.4 per Cent drop in approvals for ‘other dwellings' in July 2012 is uncomfortably large, but thanks to very healthy months in May and June, approvals over the three months to July were still up by 38.8 per cent," he added. "That couple of months of better levels, significantly unwound in July, was narrowly driven, largely by the apartment market. Meanwhile, the profile for detached houses is still very weak with the 2.7 per cent rise in July still leaving approvals in mid-2012 nearly 20 per cent below their long term average.

Building approvals for detached houses, semi-detached dwellings, and units of three storeys are still running at levels considerably lower to those evident in mid-2011."

In July 2012 total seasonally adjusted building approvals fell by 9.4 per cent in New South Wales, 29.4 per cent in Victoria, 19.7 per cent in Queensland, 1.3 per cent in South Australia, 4.8 per cent in Western Australia, and 4.5 per cent in Tasmania. In trend terms building approvals increased by 4.4 per cent in the Australian Capital Territory but fell by 7.4 per cent in the Northern Territory.

Dale concluded: "There is still no sign of a widespread recovery in new housing, and in its own right today's approvals update takes us in the wrong direction. Indeed, the three new housing updates available to date for July all signal a further deterioration in new housing into 2012/13."

"HIA has long held the view that new housing activity will recover as we progress through 2012/13, but only very moderately unless governments lift their game and take action. To get even a mild (and therefore inadequate) recovery we need to see new housing updates far superior to those that have emerged so far in 2012."