The slump in building approvals could result in a housing shortage next year, according to an analysis from ANZ.

ANZ senior economist Felicity Emmet said rate cuts were not able to boost residential construction activity, heightening the risk of a dwelling supply shortage.

"That fall will feed through to housing supply, and vacancy rates are set to decline over 2020 and 2021. Across the two major capital cities, the shortage of housing looks likely to be more marked in Melbourne than Sydney," she said in a note.

The Reserve Bank of Australia (RBA) slashed the official cash rates three times this year. Rate cuts are typically followed by increases in house prices, home lending, and building approvals. However, Emmet said the response in building approvals after the recent rate cuts remains relatively muted.

"The lags between interest rate cuts and building approvals are lengthening as apartments become more significant in the housing mix. There are signs of a pick-up in some of construction's other leading indicators, which suggest a turn in approvals is imminent," she said.

Building approvals declined by 8.1% on a seasonally-adjusted basis in October, according to the Australian Bureau of Statistics (ABS). In trend terms, the October fall was 0.8%, the 23rd consecutive month of decline.

A separate analysis by Maree Kilroy from BIS Oxford Economics pointed at the "alarming" rate of decline in approvals.

"Despite the recent recovery in residential property prices, it is not until June quarter next year that an upturn in approvals is anticipated to kick through," Kilroy said.

Property Council of Australia chief executive Ken Morrison shared similar insights, adding that the slump in approvals should give a strong signal for the federal government to act.

"Housing construction is a key driver for the economy, and it has been slowing down significantly. This matters for jobs in the housing construction industry and the economic activity they support," he said.