Australia’s’ Building Market – A Reversal of Growth

The national economy has been driven by Australia’s building market over the past few years. According to a report in BIS Oxford Economics, over the next three years, there will be a decline in the building market, starting with the collapse of residential construction.

A report from Building in Australia 2017-2032, BIS stipulates that the “value of national building commencements” spiked in 2015 and 2016 at $107.3 billion, which was up by 22 per cent compared to the end of the investment boom of 2012-2013. The forecasted data for 2016-2017 is a 17 per cent decline over the next three years to 2020.

There are already signs of the residential building boom taking a backwards turn from the record-breaking boom of the past few years. According to the BIS Oxford Economics report, the next two years will see a significant fall in residential construction, especially in the investors’ sector. Supply will catch up to demand in apartments, then the downturn will come quickly.

The next three years are likely to see an overall 31 per cent downturn between now and 2020, but the high-density apartments construction will be more like 50 per cent lower. This can be compared somewhat to the mid-1990s during the residential slumps across Australia.

The one thing that prevents the downturn from occurring more quickly is the decision of the Reserve Bank to maintain the low interest rate of 1.5 per cent for residential construction. This will help maintain this sector for a quite a while, but it will start gradually decreasing. That is the good side of the picture. The managing director of BIS Oxford Economics, Robert Mellor said, “It may not be as rosy as all that.”

Currently, reports show that the dwelling demand-to-supply analysis data shows that all states, except New South Wales and Victoria, as in balance or have an oversupply. Even though the current dwelling completions are ahead of the elemental demand and will be for the next two years, the reversal swing will still affect the whole country in spite of the stock deficiency in New South Wales.

Mellow says that high-density dwellings are more time-consuming to complete than conventional detached houses, but still, the end will come quickly. Another risk factor involves the high numbers of investment activities and how these stats affect investors’ sentiment.

It is expected that 2017 and 2018 will be the peak for high-density housing completions, which will suffer a slump of 50 per cent over two years. Detached housing completions will see a slower and lesser decline. There is good news. “The saving grace is that the floor in residential commencements is likely to be higher than in previous busts”, according to Mellor.

BIS is forecasting that the value of non-residential constructions will experience a rise in 2017 and 2018. On the other hand, the total value of these commencements will likely slow in the near future.

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