THE Australian building market is set to decline by 17 per cent over the next three years led by a collapse in residential starts, according to BIS Oxford Economics.
National building commencements peaked in 2015/16 at $107.3 billion, up by 22 per cent in real terms from the end of the resources investment boom in 2012-13, but is expected to remain at a similar value for 2016-17.
In its report titled 'Building in Australia 2017-2032', BIS predicts a cumulative 17 percent decline in the commencing value over the next three years to 2019-20 with residential starts to fall 31 per cent.
Associate Director of Construction, Maintaining and Mining at BIS Oxford Economics, Adrian Hart says there is an expected residential market fall and will potentially affect the growth in building commencements.
"The record breaking residential building boom is already turning, offsetting growth in starts for non-residential building through 2016-17," says Hart.
"Over the next two years, the fall in residential building stars will accelerate sharply, particularly in the investor-driven apartments segment, as supply catches up to underlying demand," he says.
"BIS expects the total residential market to fall by around 31 percent over the next three years, but the decline in the number of private high-density apartments getting underway nationally will be close to 50 percent.
"Overall the slump will be similar in percentage terms to the residential downturns in the mid-1990s and the introduction of the GST in 2000-01."
The report is more bearish than a statement last week by Reserve Bank Governor, Phillip Lowe, on its decision to keep interest rates on hold, noting "the current high level of residential construction is forecast to be maintained for some time, before gradually easing."
"It may not be as rosy as all that," says Robert Mellor, managing director at BIS Oxford Economics.
"While high density dwellings do take longer to complete than traditional detached dwellings, when the end comes it will be very swift. The high proportion of investor activity is another risk factor as investor sentiment can turn quickly," says Mellor.
"Our dwelling demand/supply analysis indicates that all states with the exception of Victoria and New South Wales are either in balance or oversupply," says Hart.
"With dwelling completions running ahead of underlying demand over the next two years, Australia will swing to a significant national residential stock surplus by 2018-19 despite New South Wales still facing a significant stock deficiency."
In contrast to the residential building market, the report forecasts the value of non-residential building commencements to rise further in 2017-18, following a cumulative increase of 25 per cent over the past two years.
BIS concludes the looming downturn in building commencements presents a fundamental challenge to achieving the three per cent growth targets for the Australian economy outlined in the 2017-18 Federal Budget.
Business News Australia
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