The record-beating residential building boom has already reached its peak and will soon begin to run out of steam, according to industry analyst and forecaster, BIS Shrapnel.
According to the company’s Building in Australia 2015-2030 report, national dwelling commencements are estimated to have reached their peak over 2014/15 and will begin to gradually decline from this level in coming years.
“After recording strong growth over the past few years, we estimate that total dwelling starts reached just over 210,000 in 2014/15, an all-time record high,” said Dr Kim Hawtrey, Associate Director with BIS Shrapnel“From this level, national activity is then forecast to begin trending down over the following three years, with the currently high-flying apartments sector leading the way down.”
While a sizeable dwelling stock deficiency coupled with record-low interest rates drove building activity to its current highs, Dr. Hawtrey warns that the national market will shift into a mild oversupply by 2018.
“Low interest rates have unlocked significant pent up demand and underpinned the current boom in activity, but as population growth slows while construction activity remains strong, new supply will begin to outpace demand,” said Dr. Hawtrey.
“This will see the national deficiency of dwellings gradually eroded and some key markets will begin to display signs of oversupply.”
In the company’s latest forecasts, net overseas migration is expected to continue its recent downwards trend and gradually ease in response to softer employment and economic growth, resulting in a weaker outlook for population growth.
However, residential building activity has continued to grow and new dwelling completions are estimated to have pushed above the underlying demand for dwellings in 2014/15 for the first time since 2011.
Based on BIS Shrapnel assumptions about household formation per thousand head of population, the Building in Australia 2015-2030 report estimates the national dwelling stock deficiency reached a peak of around 108,000 dwellings by June 2014.
After a strong 2014/15 this has slipped back to approximately 85,000 as at June 2015.
“After a sustained period of underbuilding, new dwelling supply is now exceeding demand.""With investors and upgrader/downsizers providing enough momentum to sustain activity at historically strong levels, we estimate that the national deficiency will have been largely satisfied by 2018,” said Dr. Hawtrey.
“Although the outlook will vary significantly between markets.”
Importantly, despite reaching its peak in 2014/15, new dwelling starts will continue to track at historically high levels over the coming years.
Low interest rates will continue to support demand, with investors and upgrader/downsizers expected to remain the driving force across the national market.
“While we are forecasting a fall in activity from its current peak, this will mostly be felt in the higher density segment of the market,” said Dr. Hawtrey.
“After climbing to nearly 100,000 starts there will be an inevitable adjustment in the other dwellings
sector as they move back to more sustainable levels.
"Detached houses – the late bloomer in this cycle – will prove more resilient, holding up in 2015/16 before
beginning a more subdued decline beyond that.”