Housing construction in Sydney and Melbourne is headed for a major slump, hit by apartment oversupply and credit tightening, according to industry analysts Macromonitor.

The downturn is already underway at a national level, with Macromonitor forecasting a total decline in dwelling starts of 23 per cent from the peak in 2016 to a trough in 2019.

"The regions affected by the mining downturn led the way with big falls in residential building from 2014, and the downturn has progressively spread across the nation, with the exception of the remaining strongholds of Sydney and Melbourne", said Macromonitor analyst Nicholas Fearnley.

Apartment construction in Sydney and Melbourne will be hit hardest. Dominic Lorrimer

"The Sydney and Melbourne markets remain at or near the peak of an extraordinary upturn, which was driven by a long period of low interest rates, previous under-building, an unprecedented flood of foreign investment into residential property, and an influx of people returning to the south-eastern states after the mining collapse in Western Australia and Queensland."

In New South Wales, dwelling starts are forecast to drop by 32 per cent between 2016/17 to 2019/20, according to the Macromonitor report.