The peak of the boom in residential construction in Queensland appears to be coming to an end, as the latest forecast suggests that housing starts are expected to drop by almost 12 percent in 2017.

In its latest report, the Master Builders Association of Queensland says it expects dwelling commencements to fall from what it expects will be a record 48,000 in 2016 to a still healthy 43,000 in 2017 before dropping back further to 40,000 the following year.

Master Builders deputy CEO Paul Bidwell said the residential sector said the residential sector will start the year on a strong note as it works through the existing pipeline of work.

“Beyond the existing pipeline of work demand is softening. There are reports of softer rents, more modest price growth,” Mr Bidwell said.

Bidwell said activity will shift away from large apartment complexes into smaller developments.

“The growth will continue to be concentrated in the south-east but will shift away from large unit blocks to smaller developments – detached housing, townhouses and boutique unit developments. Owner occupiers will increasingly move into the market, while investors will become more cautious.”

At the moment, home building activity throughout the state and particularly in the south-east is extremely strong as record levels of housing starts from last year keeps the industry extremely busy.

As at September last year, ABS data suggests that the value of work in the residential pipeline throughout the state stood at record levels of $6,708 billion – almost three times its level four years earlier.

Nevertheless, building approvals have slowed, indicating that the pace at which new work is coming into the system is moderating.

Moreover, significant volumes of new supply which are set to come online are causing raising concerns that some parts of the market might be pushed into a situation of oversupply.

In its forecast, Master Builders said there were a number of positives going forward as healthy levels of population growth are expected and the state’s economy is expected to outperform the national economy.

Apart from the supply issue, however, there are also other headwinds as the loss of 30,0000 jobs over the past twelve months and subdued income growth has limited consumer spending confidence and power.

In addition, affordability issues are having a significant impact, with around half of all builders throughout the state reporting in a recent survey that difficulties in this area were impacting housing demand.

Outside of new housing, Bidwell says renovations activity will be healthy as high house prices cause many homeowners to consider renovating their existing home rather than moving house.

Kitchens and bathrooms are likely to remain popular options on the renovation front as they can make a home more liveable while adding value at the same time, Bidwell said.

Outside of housing, Master Builders said commercial building activity will remain subdued amid a lack of private and public sector investment.