The survey of 200 firms by Australia Industry Group and the Housing Industry Association found the apartment sector still struggling from tight credit and a cooling in the once red-hot engineering industry.
"The operating environment remained difficult in March with tight credit conditions, subdued client demand and project delays having adverse impacts on construction companies," said AIG associate director of public policy Peter Burn.
The survey's main measure of overall construction conditions fell 4.1 points to 48.7, under the 50 threshold that separates growth from contraction.
The index of house building dropped a hefty 11.6 points in March to 50.0, while the measure of apartment building edged up 3.5 points to 46.2.
"The fall in new orders in the house building and apartment sub-sectors comes at a time when there is already a shortage of housing and a growing gap between demand and supply," said Burn.
Businesses attributed the decline in housing new orders to the end of the government's first home buyers boost and the rise in interest rates since October.
The Reserve Bank of Australia (RBA) has raised interest rates five times at its last six policy meetings, with the latest hike to 4.25 percent coming just this week.
The index of engineering activity dropped 6.4 points to 48.5, taking it into contractionary territory. Commercial construction was the only sector to record growth with its index up 0.8 points at 51.2.
New orders fell 5.3 points to 46.0, while the survey's measure of employment dipped 0.6 points to 50.5.
Wages growth edged up to a reading of 63.8, and firms reported a lower capacity utilisation rate of 69.9 percent. - Reuters