Approvals for the construction of new homes fell much lower than expected in April, with a sharp decline in activity in NSW the only real drag during the month.

Approvals for the month fell by a seasonally adjusted 1.8 per cent, data from the Australian Bureau of Statistics showed on Wednesday, far lower than the double-digit decrease the market expected.

Economists forecast a sharp decline after strict restrictions were imposed in late March to check the spread of coronavirus, leading to a drop in spending and investment.

But building approvals typically lag early indicators of housing demand, such as new home sales and new loan commitments, the ABS noted.

Earlier on Wednesday, data from the Ai Group and Housing Industry Association showed construction activity continued to decline in May following a plunge to record lows in April.

Approvals for private sector houses were up 2.7 per cent in the month.

Permits in the “other dwellings” category, which includes apartment blocks and townhouses, continued to show volatility, fell 8.9 per cent.

This was likely driven by a sizeable correction in new high-density approvals in NSW.

Other large states continued to show growth in house and attached dwelling approvals.

Total building approvals are now up 5.7 per cent in the 12 months to April.

Housing construction activity in Australia has continued to be supported by record low interest rates and strong population growth.