Home building companies throughout Australia face a slowdown in conditions as a diminishing pipeline of work sees the volume of new construction undertaken within Australia decline over the next two years, a new report says.

In its latest report, Housing Industry Association said it expects the number of new homes and apartments on which building work will commence to fall from elevated levels of 225,900 in 2018 to 191,000 in 2019 and 180,200 in 2020.

At these levels, activity will still remain high by historic standards.

As recently as 2012, for example, dwelling commencement levels stood at just 153,500.

Nevertheless, the forecasts mean that the pace at which new home building work is coming in will slow from recent elevated levels seen during the apartment building boom.

HIA Chief Economist Tim Reardon says the market is being impacted by several factors.

First, falling prices have dinted confidence, leading to both owner occupiers and investors delaying purchasing decisions.

As well, for a variety of reasons, the level of foreign investment coming in to Australian real-estate has slowed.

Moreover, purchasing activity has been unexpectedly affected by a credit squeeze as banks have reduced the amount of money they are prepared to lend each customer.

As a result, Reardon said the volume of new home building work is diminishing.

He says the impact of has already become evident in cities with weaker markets such as Perth but is yet to be felt in places such as Melbourne which have a substantial volume of work in the pipeline.

“The pipeline of building work has expanded over recent years and this backlog is now being reduced,” Reardon said.

“If the leading indicators do not improve in the first half of 2019, then the pipeline of building work will be exhausted at a concerning rate.”

According to Reardon, the impact of the credit squeeze has not yet warranted a material downgrade to HIA forecasts because reasonable conditions throughout the broader economy will continue to support healthy levels of new home construction even as the industry adjusts back to more normal conditions following the recent boom.

He says the building industry, which has driven activity in the rest of the economy for the past five years, is now reliant on the strength of the rest of the economy to delivery an orderly downturn in home building conditions.

Forecasts for such an orderly downturn also rely on expectations that governments will unduly constrain net overseas migration, he said.

Should the current decline in net overseas migration to accelerate, Reardon says interest rate cuts are likely to be necessary in order to mitigate the adverse impacts of this home building downturn on the wider economy he said.

In its reports (state and national), HIA has provided forecasts for both new home building and renovations activity at a national level and for each state.