Apartment building to drop by 40% by 2018/19

Speaking after the release of the HIA’s National Outlook report, acting chief economist Warwick Temby commented that “notwithstanding the current uncertainties around the broader economic outlook, especially with the future US policy settings up in the air, HIA is forecasting a measured return to more normal levels of home building activity over the next couple of years”. 

The association has forecast that new residential building will slow over the next two years, to bottom out “at what will still be a historically healthy level of activity”.

Overall, the HIA forecast total new commencements across Australia to decline 3.1 per cent, 18.5 per cent and 5.1 per cent over the period 2016/17 – 2018/19, which would take commencements to 172,242, the average for the last 10 years.

Mr Temby commented: “Actual building activity on the ground will not decline in the same way as new starts due to the substantial volume of work under construction that will not be completed until 2018 and into 2019.” 

However, the report identifies that apartment building will bear the brunt of the decline as housing comes off a record peak. 

Mr Temby added: “The recent peak in new home building was unprecedented: an all-time record 229,823 new residential dwellings started building in 2015/16. This record level of building has made a major contribution to Australia’s economic growth over the last few years and eased the under-supply of housing for both owner occupiers and renters that had built up over the previous 10 years.

“Multi-unit building, especially apartments in the eastern states, has driven much of the growth in this cycle and is also forecast to lead the slowdown in new activity over the next couple of years. From their peak of 117,000 in this calendar year, multi-unit commencements are expected to fall by over 40 per cent by 2018/19.

“A softer landing is forecast for detached homes with 103,000 starts predicted for 2018/19, down 9 per cent on the peak this year.”

However, the HIA report forecasts that the fall in new activity will differ across the country, for example, Western Australia and South Australia have already started their down-cycle “well in advance of other states”, with both seeing detached housing commencements peak in late 2014, while Western Australia has seen activity in multi-units “ease back” since early last year. 

Mr Temby concluded that renovations will rise though, stating: “Dwelling renovations are forecast to grow over the forecast period counteracting some of the decline in the new home building activity.

“By 2018/19 renovations are forecast to have grown by 6.5 per cent to be worth $32.96 billion in that year.”

It is believed that increases in renovations have been bolstered by the acceleration of house price growth in some states.

[Related: Unit developments 'on verge of being mothballed']