New home building in California continues to take a hit in what builders say is a response to the expiration of a state tax credit for new home purchases.

In hopes of reversing that trend, the building industry is pushing for passage of a bill that would bring back the credit.

During the first nine months of 2009, the number of construction permits pulled by builders for single-family houses, condos and apartments in the East Bay stood at 1,731, a 40 percent drop from the same time a year ago, according to a report released Monday by the California Building Industry Association. In the San Francisco metro area, which includes San Mateo County, builders took out 805 permits, a 73.5 percent drop, while in Santa Clara County, builders pulled 624 permits, a 76 percent drop. Statewide, 27,030 permits were pulled, a 47.4 percent drop from the same period a year ago.

A bill that would extend the popular state income-tax credit equal to 5 percent, up to a maximum amount of $10,000, of the purchase price of a new primary home has cleared the state Senate and is awaiting a vote in the Assembly.

Meanwhile, there is a push by Congress to extend another popular tax break: the federal income tax credit for first-time homebuyers set to expire on Nov. 30.

The $100 million state income-tax credit program for owner-occupied new homes kicked off in March before ending four months later. As of July 2, the state Franchise Tax Board had received

The Tax Board later determined that the average buyer who claimed the credit only paid enough in state-income taxes to qualify for $7,000 of the $10,000 maximum credit over a three-year period, which meant only $70 million in program funding was used.

The bill to extend the state tax credit would allow the unused $30 million to be applied toward an additional 4,285 new-home purchases, a figure based on the average taxpayer claiming 70 percent of the maximum credit.

Gov. Schwarzenegger has indicated he supports extending the credit, but has not yet made a final decision as to whether he would sign the bill, said Mike Naple, a spokesman in the Governor's Office.

The state Building Industry Association supported the credit the first time around and would like to see it extended, even though the group had initially sought an additional $200 million in funding for tax credits.

"Since the discontinuation of the popular homebuyer tax credit, we have seen a significant drop in traffic these past few months, which continues to drag down new-home construction, and in turn, job creation," Liz Snow, head of the Building Industry Association, said in a statement.

The $30 million in additional tax credits will help move existing inventory, or homes that have been built or are currently under contract to be built, but it does not go far enough to jump-start new projects, according to Cheryl O'Connor, acting president and chief executive officer of the Home Builders Association of Northern California.

"Our fear is that it won't last long enough to make a dent in new-home activity," she said. "But it's absolutely better than nothing."

Congressional lawmakers are also under pressure by real estate industry to extend the federal income tax credit worth 10 percent of the purchase price, up to a maximum amount of $8,000, for first-time home buyers before it expires Nov. 30.

Congressional leaders are negotiating to extend and gradually reduce the tax credit through 2010, said Sen. Bill Nelson, D-Fla.

Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.

Bloomberg News contributed to this report.