The slump in housing starts resulting from a regulatory change may bite into economic growth, Economic and Fiscal Policy Minister Hiroko Ota said Tuesday.
The slowdown in housing "may have some effect on gross domestic product," she said, and the government will monitor whether the slowdown is temporary.
Annualized starts fell 43.3 percent in August after slumping in July by 23.4 percent to a 40-year low.
The building code was changed June 20 to require stricter inspection after architects fabricated data in 2005 to falsely show that buildings were earthquake-resistant.
Under the new system, the approval process can take as long as 70 days, compared with 21 days previously.
"We can see a significant short-term distortion to residential construction from changes to approval procedures and regulations," said Richard Jerram, chief Japan economist at Macquarie Securities in Tokyo.
Building approvals jumped 6 percent in June to the most since May 1997 as the changes to the law prompted a rush of permit applications.
"The approval process appears to be taking much longer than before," said Hiroshi Shiraishi, an economist at Lehman Brothers Japan Inc. "Because the new law has reduced the flexibility of developers to modify construction plans after approval has been obtained, they appear to have become extra cautious in preparing construction applications."