The bad news for residential construction doesn’t let up. The ABS’s dwelling commencement data released this morning shows a huge drop in housing and non-house residential construction commencements in the September quarter. They fell 6.8% in seasonally adjusted terms, on top of a 4% fall in the June quarter.

Worst was non-house dwellings — apartments and townhouses — which fell more than 12% in seasonally-adjusted terms. Housing commencements fell slightly but were more resilient. Victoria was a disaster area for the housing industry, with dwellings down 15% to levels last seen during the GFC, despite a big rise in public sector housing starts. Western Australia, where regional communities affected by the mining boom are suffering acute housing shortages, saw a fall of 5%, also back to GFC levels. The only good news is in Queensland, where post-disaster reconstruction now appears fully underway and drove robust 8% growth in commencements — despite the glut of dwellings in areas like the Gold Coast. But in NSW, commencements fell nearly 5%.

As we’ve repeatedly seen, this huge slump in the housing construction industry is offsetting the boom in construction occasioned by the mining industry. But in areas like Sydney, which have seen a prolonged slump in housing construction it is rapidly adding to a serious housing undersupply problem. Between 2001 and 2004, quarterly housing starts regularly topped 12,000 in NSW; now they’re barely over 7,000 and in recent years have dipped as low as 5,000. Victoria managed over 10,000 starts a quarter even during the GFC.

From the perspective of a society and media obsessed with housing prices, it’s not such a big issue, but for renters, low income earners and young families living in the boom areas of WA and Qld and Sydney, it’s the stuff of day-to-day financial pressure that governments seem oblivious to. The NSW government’s review of that state’s planning framework has only just concluded its first stage, meaning the sclerotic, bureaucratic system developers face to gain approval for housing development will remain into 2012 and probably beyond.

Housing is notionally a significant issue on the COAG agenda but dropped entirely off it in 2011 and, in any event, Julia Gillard seems less interested in using COAG as an effective reform tool than Kevin Rudd. Housing supply is a systemic failure across all levels of government in Australia, and no politician seems interested in doing much beyond talking about it.