Apartment construction to drop 50%: BIS Oxford Economics

Apartment construction to drop 50%: BIS Oxford Economics

25 August 2017

Australia’s building market will shift into reverse over the next three years led by a collapse in residential starts, predict economists at BIS Oxford Economics (BIS).

In its Building in Australia 2017-2032 report, BIS economists forecast high-rise apartment construction will halve and overall building will decline 17 per cent over the next three years.

“Overall, we expect 2017-18 will be the peak in high density residential completions, but that part of the market will slump around 50 per cent in the subsequent two years,” said Robert Mellor, Managing Director at BIS Oxford Economics.

“By contrast, a milder decline is forecast for detached houses. The saving grace is that the floor in residential commencements is likely to be higher than in previous busts,” he added.

Forecasts are more bearish than those in the latest Federal Budget and last week’s Reserve Bank’s statement accompanying its decision to keep interest rates on hold, Mr Mellor noted.

“The record breaking residential building boom is already turning, offsetting growth in starts for non-residential building through 2016-17,” said Adrian Hart, BIS’s Associate Director of Construction, Maintenance and Mining.

“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,” he said.

The forecast is more downbeat than the predictions of the Housing Industry Association (HIA), which represents the residential market, notes The Australian.

The HIA expects residential starts to fall a more modest 24 per cent from their peak to a trough in 2019, and then to remain at historically high levels.

But if new home starts were to fall even more sharply, supply shortages could emerge in key markets such as Sydney and Melbourne given the level of population growth, HIA senior economist Shane Garrett said.

“We’d obviously be in a situation where we’re under-building relative to long-term requirements,” Mr Garrett said.

The HIA’s Housing Australia’s Future report found more than 180,000 homes would need to be built each year to cope with mid-range population growth.

Mr Garrett told Fairfax reporters: “I’d be far more concerned about tackling the risk of long-term undersupply, than short-term oversupply.”

Compass Economics chief economist Hans Kunnen told Fairfax that buyers shouldn’t hold their breath waiting for prices to fall, particularly with building approvals declining and strong population growth.

“In the interim there may be a lot of stock that’s ready to be released on the market,” he said.

“I agree there’s a cycle downturn… is that going to lead to bargain basement prices? I have my doubts, but there will be a softness in some areas.”