The Housing Industry Association has called on the government to inject much needed stimulus into the home building sector.
According to the HIA's latest National Outlook, the housing industry deteriorated further in the last quarter of 2011, making stimulus now essential.
"This needs to occur within an over-arching, renewed focus on structural reform to reduce the disproportionately high, inefficient and inequitable cost of new housing," HIA chief economist Harley Dale said.
"On current indications the crisis in Europe will require further interest rate cuts here in 2012. However, further rate cuts wouldn't, nor shouldn't be expected to, do all the heavy lifting in bolstering Australia's economic prospects.
"The combination of stimulus and structural reform led by the Federal Government would ensure increased provision of a necessity good - shelter, create a positive multiplier impact to the wider domestic economy during a time of fragility and uncertainty, and generate a medium/long term level of new home building more commensurate with the requirements of Australia's growing population."
Following a 4.9 per cent fall in 2010/11, the HIA is forecasting a 10.4 per cent decline in new housing starts in 2011/12 to a level of just over 141,000.
"Latest evidence from leading new housing indicators confirms the risk that starts fall short of this mark, instead revisiting levels comparable to those endured during the GFC, which would be a major negative for unemployment," Mr Dale said.