Industry experts say more stringent requirements from financiers, coupled with a near-standstill in buyer demand, has hampered the once-booming residential market.
The medium-term result, a drop in the number of homes built, could have dire consequences not only for builders, architects and suppliers but also prospective home buyers and renters, forced to make do with what limited housing supply exists.
UniQ Finance Australia director Veki Brdjanin, whose company finds finance for property developers, says residential builders are caught between a rock and a hard place.
He says some banks and finance groups that traditionally funded residential development have "pulled in the reins", and are insisting on developer cash contributions as high as $20 million for projects with an end value of about $100 million.
In some cases, the collateral required is more than the cost of the site.
At the same time, some financiers are demanding buyer pre-sales of more 80% for medium and high-density apartment projects, or about twice what pre-sales financiers were demanding last year, sources say.
Vinci Carbone Property director Joseph Carbone says his agency is still experiencing very good demand from developers seeking prime sites.
"The feedback which we are getting from our buyers is that they anticipate this credit squeeze will be short-lived, and that funds will start flowing again soon," said Mr Carbone. Beller Commercial director Fred Nucara says acquiring a development site is no longer the hardest part of any residential property development.
He said this year, medium and high-density residential developments are taking six to eight months or more to sell out, compared to about three months last year.
LandMark White director Vanessa Rader says residential buyers are adopting a wait-and-see attitude in the belief prices are softening or at best will not increase in the short term.
Housing Industry Association managing director Dr Ron Silberberg said the recent trebling of the First Home Owners Grant has boosted confidence in the market, and was necessary to save jobs in the residential construction and manufacturing industries.
But the jury is still out as to whether the boost will encourage home buyers. The first real test of the market, the last weekend of October, saw the auction clearance rate at just 53%. This compares with more than 80% at this time last year.