BIS SHRAPNEL: The construction boom has peaked

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Australia’s home building boom has already reached its peak and will soon begin to run out of steam, led by the apartment sector, according to forecaster BIS Shrapnel.

While the Reserve Bank and regulators worrying about an overheated market, BIS Shrapnel says that building hit the top sometime in the financial year just ended and will gradually decline in the next few years.

BIS Shrapnel estimates that total dwelling starts reached just over 210,000 in 2014-15, an all-time record high.

“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,” says Kim Hawtrey, associate director with BIS Shrapnel.

“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.”

BIS Shrapnel’s latest forecasts show net overseas migration continuing its recent downwards trend and gradually easing 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 the first time since 2011.

This chart shows the market has already hit a peak and will move into oversupply in 2018:

BIS Shrapnel’s Building in Australia 2015-2030 report estimates the national dwelling stock deficiency reached a peak of around 108,000 by June 2014. After a strong 2014-15 this has slipped back to about 85,000.

“After a sustained period of underbuilding, new dwelling supply is now exceeding demand,” says Hawtrey.

BIS Shrapnel estimates that the national shortfall will have been largely satisfied by 2018, with the outlook varying significantly between states.

New South Wales, Victoria and Queensland led the way in 2014-15 but only New South Wales is expected to maintain growth this current financial year on the back of a strengthening economy and a persistent shortfall in housing.

Queensland will remain relatively flat. Victoria will experience the most significant reversal of the three eastern states with a fall of 7%.

Western Australia will experience the sharpest decline of the five major states with a fall of 13% as its economy slows in the wake of the mining boom and population growth softens.

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