On Thursday the Australian Competition and Consumer Commission's statement of issues highlighted significant concern from residential home builders about the merger, suggesting Boral and CSR have an uphill battle winning regulatory approval.

"The proposed joint venture would result in a duopoloy in eastern Australia," ACCC chairman Rod Sims said.

"The ACCC's preliminary view is that this would be likely to lead to an increase in the price of clay bricks as well as a reduction in the product range available to residential builders, architects and end-consumers."

The ACCC said that if the deal went ahead the merged CSR-Boral entity and Austral Bricks, a subsidiary of Brickworks, would together account for around 99 per cent of clay brick supply in New South Wales and Queensland.

CIMB analyst Andrew Scott said the ACCC has presented significant hurdles to the merger.

"We believe that an ACCC decision to block the proposed JV would pave the way for further writedowns," he said.

"It is worth noting that the [brick] businesses are generating inadequate returns while housing starts...approach near record levels."

In the 12 months to June Australian housing commencements lifted to 181,000, the highest annual result since 1994, according to Commonwealth Bank analyst Michael Ward.

However a growing number of new homes are apartments, which use significantly less traditional building products. Brick production has dropped 46 per cent since 1986.

Boral chief executive Mike Kane has previously said the brick industry needs structural change and it is a case of merging or exiting markets.Boral has a return on funds employed target of 15 per cent. In 2013-14 Boral's building products division, which includes bricks, had a ROFE of just two per cent.

"Neither Boral nor CSR has been generating anything like acceptable returns in their...brick businesses," JP Morgan analyst Jason Steed said.

CSR has previously said its Schofields plant in Sydney, which falls under the North-West Rail Link extension could be an attractive residential development. CSR's Horsley Park plant is a potential industrial development.

"One possible option [if the deal is blocked] would be to divest some of their sites to realise land value which is much greater than the going concern value of those businesses," Credit Suisse analyst Andrew Peros said.

An important piece of Boral and CSR's argument rests on the interpretation of the cladding market, and whether brick is seen as a competitor product to other materials like fibre cement, timber and concrete panels.

The regulator does not seem to agree with this broader market definition.

"The ACCC's review to date has found that other external cladding materials are not substitutes for clay bricks," Mr Sims said.

"Consumers are unlikely to choose fibre cement boards, concrete blocks or other materials in response to brick prices increasing," he said.

Boral and CSR announced the merger plans in April. The venture would be 60 per cent owned by CSR and 40 per cent owned by Boral, with combined revenue of $230 million and initial cost savings of up to $10 million.

Boral and CSR said in a statement on Thursday that they will continue to engage with the ACCC.

"CSR and Boral consider that the merits of the transaction are significant and that the transaction would not result in a substantial lessening of competition," the companies said.

"The joint venture will be a more sustainable business positioned to deliver returns that recover the cost of capital through building cycles."

The regulator is seeking more information to determine whether the JV would substantially lessen competition. It has invited further submissions up til November 6.