CONFIDENCE in the residential construction sector has dropped dramatically in New South Wales, even without taking into account higher taxes announced for overseas property investors.

The ANZ Property Council Survey measured the confidence of almost 1600 industry respondents in Australia, with 573 coming from NSW this quarter.

Construction activity expectations in the residential sector fell by 45.9 index points between September 2015 and September 2016, compared to a national drop averaging 36.5 index points.

"This dramatic drop is concerning for the future of housing supply in NSW especially in the context of the new state taxes on foreign investment in residential property," Property Council NSW executive director Jane Fitzgerald said.

"Construction expectations are down slightly in the other asset classes of retail, office, industrial and retirement but the drop in the residential class is more than seven times worse than the others.

"The survey underscores the fact that these are bad taxes being imposed at the wrong time."

Ms Fitzgerald said the figures were collected before the new taxes were announced.

She said the new taxes would only worsen the outlook for the state's housing supply and affordability.

The survey also showed general confidence levels had dropped slightly in the past quarter - from 143 down to 139 on an index where 100 was neutral.

However, confidence levels in NSW were still above the national average of 128. -ARM NEWSDESK