Building approvals ended 2012 with a solid fall that surprised economists who were generally expecting a modest rise.

Official figures from the Bureau of Statistics show the number of dwellings approved for construction fell 4.4 per cent in December, more than offsetting a 3.4 per cent rise the previous month.

More worryingly for analysts, the fall was split fairly evenly between a 3.3 per cent decline in the more stable detached house figures, and a 5.4 per cent slide in the typically volatile non-house dwellings category (mainly apartments).

However, Westpac's economics team says the numbers need to be interpreted with caution, because the summer period generally sees large revisions to the initial figures, and because the fall was almost exclusively centred in Victoria, which had a 12.7 per cent slide in house approvals.

"On the one hand there may have been a significant policy-induced 'hole' in approvals in the month," the bank's economists wrote in a note.

"The Victorian state government changed its incentives for first home buyers in 2012 from a grant of up to $13,000 to significant stamp duty concessions (both only available on properties up to $600,000).

"However, the transition period was not smooth with the grant phasing out at the end of June and stamp duty concessions coming into effect in January. The gap may have encouraged many to delay building, particularly late in the year."

The bank says that explanation is undermined somewhat by separate figures showing that Victorian first home buyer activity held up last year, despite the policy changes.

Queensland had the best rise in December dwelling approvals, with a 7.9 per cent rise overall.

Over 2012, private sector house approvals were down 3.8 per cent and non-house approvals surged 31.7 per cent, reflecting a trend towards high density living.

Master Builders Australia's chief executive Wilhelm Harnisch says the construction sector is hoping lower rates will boost demand for new homes, but that more rate cuts may be needed.

"The industry is looking to last year's rate cuts to bolster new home buyers' interests in the coming months and provide a much needed boost to the industry," he noted in response to the ABS figures.

"The December building approvals figures should give the Reserve Bank of Australia cause to closely look at another rate cut at the board meeting tomorrow."