Total dwelling starts reached 220,100 in 2015/16, an all-time high, but the decline is expected to start this year and this will mostly be felt in the apartment building sector.
"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," says Associate Director at BIS Shrapnel, Dr Kim Hawtrey.
Attached dwelling starts are expected to fall from around 107,000 currently to just 53,800 by 2019/20.
Hawtrey says low interest rates have unlocked pent up demand and underpinned the current boom in activity, but with population growth slowing and a strong backlog of dwellings due for completion, new supply will outpace demand following the past couple of years of booming construction.
"This will see the national deficiency of dwellings gradually eroded and most key markets will begin to display signs of fatigue," says Dr Hawtrey.
Not even the continued undersupply in housing and strengthening economies in Sydney and Melbourne will be able to stop the slowdown. The national dwelling stock deficiency reached a peak of around 117,000 by June 2014, but this halved in the following two years to 58,000.
It is expected that investors will no longer fuel the market as they once did because of finance restrictions and first home buyers remain sidelined.
Victoria is expected to experience the most significant reversal of the eastern states of 17 per cent in the coming financial year, but Western Australia will fare worst as its residential construction contracts 19 per cent due to the end of the mining boom and softening population growth.
Non-residential building is expected to remain flat, with activity fluctuating between $30-$35 billion over the next four years.
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