Building slide to hit home

AUSTRALIA’S over-reliance on homebuilding as a major growth engine will be put to the test, economists say, with the residential construction market lurching towards its sharpest slide in 16 years.

The number of homes being built is forecast to fall 31 per cent during the three years to 2019-20, according to a report from industry researcher BIS Oxford Economics.

Its prognosis is even worse for high-density apartments, where BIS expects the decline to be closer to 50 per cent.

The pullback will see the number of residential starts slide from 233,600 at present to about 160,200, BIS says in the report to be released today.

That would rate as the heaviest drop since the introduction of the GST in 2000, casting a pall over one of the economy’s most enduring drivers of growth and employment.

“Our ... analysis indicates that all states with the exception of Victoria and New South Wales are either in balance or oversupply,” BIS Oxford Economics managing director Robert Mellor said.

“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 NSW still facing a significant stock deficiency.”

BIS also predicts the value of all new builds – including commercial property – will slide from about $107.2 billion at present to $88.9 billion by June 2020. That is the lowest combined level since June 2013, just as the property market was starting to take off.

BIS associate director Adrian Hart said the decline would present a huge challenge to the federal Budget and Reserve Bank’s predictions of gross domestic product growth in excess of 3 per cent.

“The strong growth in building commencements since 2012-13 provided a welcome boost for the Australian economy at a time when resources-related investment and construction activity fell heavily,” Mr Hart said.

“But with residential building activity in particular now set for a sharp decline – along with its multiplier impacts on industries such as construction, manufacturing and retail – the Australian economy will need new investment drivers to support growth and employment.”