With economists largely in agreement that the property market is levelling out, the focus has now turned to how quickly housing construction will turnaround as prices pick up.

Research house BIS Oxford Economics has forecast the next housing construction peak within five years, with strong population growth and a projected undersupply in some states expected to create a renewed upswing in residential building by 2023-24.

BIS has forecast a significant 55 per cent rise in residential construction over the next four years to reach a peak of 236,650 in 2023-24.

But first BIS managing director Robert Mellor says the housing construction downturn has a further 8 per cent to run over the next year.

The construction slump is deeper than previously forecast — 33 per cent from peak to trough — with the value of building commencements contracting 12 per cent in 2018-19.

The BIS Oxford Economics report, Building in Australia 2019-34, cites weak presale volumes, insurance concerns and increasing reports of building defects as downside risks to the industry.

“Fiscal year 2019-20 should represent the trough for total building,” Mellor said.

“A strong rebound anticipated from 2020-21 onwards as interest rate cuts, easing mortgage serviceability tests and first home buyer stimulus help facilitate a broad recovery.”

Apartments and townhouses continued to show the most weakness, recording a 24 per cent decline in construction starts over the year while houses declined a more modest 9 per cent.

Mellor said that he doesn’t expect stimulus measures to affect new dwelling construction until mid-2020.

“It is not until [then] that a suite of measures are expected to flow through to new dwelling construction by facilitating credit availability, reducing barriers to entry and boosting confidence.

“As Australia’s dwelling stock deficiency grows once again, residential activity is forecast to hit a new record in 2023-24.”

Pent up demand, undersupply to power next peak

Despite the significance of the current downturn, BIS expects national residential starts to trough at 152,900 — well above the average of prior cycles dating back to the ’70s.

Mellor predicts the next peak in 2023-24.

“Australia’s dwelling stock deficiency will grow once again as rising undersupplies in Victoria, Queensland and Tasmania develop by 2020-21.

“We anticipate this pressure to facilitate growth in house prices and rents, helping create a renewed upswing in residential building starts through the early to mid-2020s.”

Mellor says that first home buyers and upgraders will initiate the recovery, with investor demand to follow as rental growth accelerates.

“Once gross yields for residential property appear more favourable, investor demand is expected to start firing for both new and existing dwellings, but this is unlikely to occur until the second half of 2021.

Mellor warns that if investors do not return to the market the momentum needed to sustain a recovery will fall short.

“We could experience a deeper downturn before then, and a delayed recovery, if fundamental drivers of residential activity were to ease more than expected.

“A crisis of confidence surrounding build quality in the apartment market has the potential to weigh further on apartment construction over the short term, adding downside risk to the outlook.”

As for house prices, BIS has said a meaningful turnaround in prices is a way off but the market is approaching bottom.

BIS has forecast a modest rise in Sydney and Melbourne over the next year, while remaining more bullish about a Brisbane recovery — predicting house prices in the river city to rise up to 20 per cent rise over the next three years.

This article by Ana Narvaez and was originally published on theurbandeveloper.com. Click here to read the original article.

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