The latest Housing Industry Association's Trades Report revealed there's a growing shortage of skilled builders amid 'big swings' in building approvals over the past 18 months.

HIA economist Angela Lillicrap said the HIA Trades Index falling again this quarter indicates that the industry is experiencing the 'worst shortage' since the report's inception in 2003.

"Skilled trades continued to be in high demand as a record volume of detached home building and renovations is occurring," Ms Lillipcrap said.

"All regions across Australia are reporting an acute shortage of skilled trades and all trades are in short supply."

The HIA Trades Index measures the availability of skilled trades and any demand pressures on the industry, which fell from -0.53 to -0.69 this quarter. Any number below zero indicates a skills shortage according to the report.

This comes as total dwellings approved fell 4.3% in September off the back of a 7.6% rise in August according to the Australian Bureau of Statistics (ABS).

Daniel Rossi, ABS Director of Construction Statistics, said this decline was driven by a large fall in approvals for private sector houses, which fell 16%.

"The decline in private house approvals over recent months can be largely attributed to the end of federal and state stimulus measures," Mr Rossi said.

"Despite the fall in September, the series remains 18.2% higher than the pre-pandemic level in September 2019."

Westpac economists said this fall in approvals isn't as weak as their expected 8% decline, but that the detail was on the weak side.

New dwelling approvals peaked in March 2021 off the back of the government's HomeBuilder scheme, but Westpac economists say the HomeBuilder unwind is not complete.

"Detached building approvals continue to suggest there is still strong demand for housing six months after the HomeBuilder stimulus ended in March," HIA economist Tom Devitt said.

"Detached building approvals in the three months to September 2021 remain up by 15.5%  on the same quarter in 2020 and 32.2 per cent up on the same time in 2019."

Sydney spike in new apartment developments

The total number of dwelling approvals fell everywhere except New South Wales, which recorded a rise of 27.2% in September. 

This was driven by a rise in apartment developments approved in the month.

"Apartment approvals have been improving over the last year or so, led by New South Wales and, to a lesser extent, Queensland and Western Australia," Mr Devitt said.

"This suggests investors are looking through the haze of the pandemic to a brighter outlook on the other side."

The number of dwellings otherwise fell by 22.7% in South Australia; 21.5% in Queensland; 20.9% in Western Australia; 15.7% in Victoria; and 11.8% in Tasmania.

NSW's spike was the only thing preventing what would have been a double-digit monthly decline in building approvals according to Westpac economists.

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