Home building set for collapse as “tsunami of supply” hits

AUSTRALIA'S residential building boom will soon start to run out of steam, with construction of new unit blocks set to halve by 2020, a report has predicted.

Released today, the Building in Australia 2016-2031 report says new home building will begin to slow from its 2015-16 peak in the coming year as a "tsunami of supply" impacts the market.

The BIS Shrapnel report says the number of new multi-residential dwellings is expected to plummet by 50%, from 107,000 to 53,800, over the next four years with the high-rise apartment sector leading the decline.

BIS Shrapnel associate director Kim Hawtrey said while a lack of supply and low interest rates had driven building activity to its current peak, the major markets - with the exception of New South Wales - would soon shift into oversupply.

"Low interest rates have unlocked significant 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," Mr Hawtrey said.

"This will see the national deficiency of dwellings gradually eroded and most key markets will begin to display signs of fatigue."

Despite building activity starting to slow, however, the report's author said work starting on new homes would still track at a historic high over the next 12 months.

"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," he said.

The findings also indicated investors who once drove the "apartment boom" would no longer fuel the market due to financial restrictions.

"With investors facing finance restrictions and first home buyers sidelined, it will be up to upgraders/downsizers to help cushion the decline in activity," Mr Hawtrey said.

"But we're not confident, given that the national stock deficiency will have been largely satisfied by 2017."

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