Australian building commencements are set to experience the sharpest contraction since the 2008 Global Financial Crisis, according to building market analyst and economic forecaster, BIS Oxford Economics.
In its Building in Australia 2018-2033 report BIS Oxford Economics indicates that while the real value of national building commencements rose an estimated five per cent in 2017/18, it is forecast to fall a cumulative 10 per cent over the next two years, led by a 23 per cent correction in residential starts.
“The building sector is switching from being a strong growth driver to a drag on the economy,” said Adrian Hart, Associate Director of Construction, Maintenance and Mining at BIS Oxford Economics.
“Over the next two years, the fall in residential building starts will accelerate sharply, particularly in the investor-driven apartments segment, which is set to fall 50 per cent.
“The key driver of the residential building downturn is falling investor demand.
“Domestic and foreign investor demand is weakening in the face of tougher lending criteria and increased foreign buyer charges.
“In turn, falling demand and rising supply (completions) is driving lower house prices, which also affects the attractiveness of housing as an investment asset.
While price falls are expected to be modest, the high concentration of investor demand in attached dwellings will see this part of the market fare worst of all over the next two years.”
“Land prices have spiked in Sydney and Melbourne in recent years, pricing many people out of the market for new houses,” said Hart.
“This will act as a disincentive for new house building and pull buyers towards the established dwelling market.”
While total dwelling commencements saw flat growth in 2017/18, it was a very different picture by state and territory
Tasmania saw (+25 per cent), Victoria (+13 per cent), South Australia (+9 per cent) and the ACT (+6 per cent) offsetting falls elsewhere.
However, as the apartment boom turns to bust, those states and territories which saw the greatest increases in recent years are forecast to see the greatest corrections in total dwelling starts.
This was particularly seen in the eastern states of NSW (-26 per cent over the next two years), Victoria (-29 per cent) and Queensland (-15 per cent), as well as the ACT (-27 per cent) where a record 80 per cent of dwelling starts in 2017/18 were medium to high density dwellings.
Despite the severity of the decline in the eastern states, national dwelling starts will remain at levels greater than any year prior to 2014.
This is driven by sustained population growth and improving economic conditions.
